Q1: On January 1, 2019, Yarmouth Inc. acquired 90% of Covington Co. by paying $477,000 cash....

Q1: On January 1, 2019, Yarmouth Inc. acquired 90% of Covington Co. by paying $477,000 cash. There is no active trading market for Covington stock. Covington Co. reported a Common Stock account balance of $140,000 and Retained Earnings of $280,000 at that date. The fair value of Covington Co. was appraised at $530,000. The total annual amortization was $11,000 as a result of this transaction. The subsidiary earned $198,000 in 2019 and $226,000 in 2020 with dividend payments of $42,000 each year. Without regard for this investment, Yarmouth had income of $308,000 in 2019 and $364,000 in 2020 (these numbers do not have investment income).

Prepare a proper presentation of consolidated net income and its allocation (Consolidated net income before allocation, NCI share of NI from Covington, and Consolidated Net income to Yarmouth) for 2020.

What is the noncontrolling interest balance as of December 31, 2020?

What is the investment balance as of December 31, 2020?

Expert Solution

Consolidated Income Statement
For the year ended December 31, 2020
Particulars	Amount
Net Income of Yarmouth	$ 364,000.00
Net Income of Convington	$ 226,000.00
Less: Amortization	$ (11,000.00)
Consolidated Net Income before allocation	$ 579,000.00
NCI share of Net Income from Convington	$ 21,500.00
Consolidated Net Income to Yarmouth	$ 557,500.00

Calculation the value of Investment and NCI balance as at Dec 31, 2020
Particulars	Yarmouth share (90%)	NCI share (10%)
Value of Investment as at Jan 1, 2019	$ 477,000	$ 53,000
Add: Net Income for the period 2019	$ 178,200	$ 19,800
Less: Amortization for 2019	$ (9,900)	$ (1,100)
Less: Dividend received	$ (37,800)	$ (4,200)
Value of Investment as at Jan 1, 2020	$ 607,500	$ 67,500
Add: Net Income for the period 2020	$ 203,400	$ 22,600
Less: Amortization for 2020	$ (9,900)	$ (1,100)
Less: Dividend received	$ (37,800)	$ (4,200)
Value of Investment as at Dec 31, 2020	$ 763,200	$ 84,800

Thus the answers would be:

The noncontrolling interest balance as of December 31, 2020 = $84,800

The investment balance as of December 31, 2020 = $763,200

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