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In: Accounting

Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2018: Preferred stock—$100 par,...

Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2018:

Preferred stock—$100 par, nonvoting and nonparticipating, 8% cumulative dividend $ 2,000,000
Common stock—$20 par value 4,000,000
Retained earnings 10,000,000

Haried Company purchases all of Smith's common stock on January 1, 2018, for $14,040,000. The preferred stock remains in the hands of outside parties. Any excess acquisition-date fair value will be assigned to franchise contracts with a 40-year remaining life.

During 2018, Smith reports earning $450,000 in net income and declares $360,000 in cash dividends. Haried applies the equity method to this investment.

What is the noncontrolling interest's share of consolidated net income for this period?

What is the balance in the Investment in Smith account as of December 31, 2018?

What consolidation entries are needed for 2018?

a. What is the noncontrolling interest's share of consolidated net income for this period?

b. What is the balance in the Investment in Smith account as of December 31, 2018?

a. Net income - noncontrolling interest's share
b. Investment in Smith account

Prepare Entry S and A to eliminate the subsidiary stockholders' equity, record excess fair values, and to record the outside ownership of the subsidiary's preferred stock at fair value.

Note: Enter debits before credits.

Preferred stock (Smith)
Transaction Accounts Debit Credit
1 Preferred stock (Smith)
Common stock (Smith)
Retained earnings (Smith)
Franchises
Investment in Smith
Noncontrolling interest in Smith

+

Prepare Entry I to eliminate the equity accrual made in connection with common stock along with the excess amortization recorded by the parent.

Note: Enter debits before credits.

Transaction Accounts Debit Credit
2 Equity income of subsidiary
Investment in Smith

+

Prepare Entry D to remove the intra-entity dividend declarations made on common stock.

.

Note: Enter debits before credits.

Transaction Accounts Debit Credit
3 Investment in Smith
Dividends declared

+

Prepare Entry E to recognize the amortization of franchises for the current year.

Note: Enter debits before credits.

Transaction Accounts Debit Credit
4 Amortization expense
Franchises

+

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