In: Accounting
c. Compute the income that should be assigned to the noncontrolling interest in the 20X7 consolidated income statement. (Do not round your intermediate calculations. Round your final answer to nearest whole dollar.) | |||
Income to noncontrolling interest | |||
Stargell's 20X7 net income * | |||
Income to noncontrolling interest | |||
Net income calculations * | |||
Net income | |||
On December 31, 20X7, trial balances for Posey and Stargell appeared as follows: | |||||||||
Posey Manufacturing | Stargell Corporation | ||||||||
Item | Debit | Credit | Debit | ||||||
Cash | $49,500 | $39,000 | |||||||
Current Receivables | 121,500 | 90,100 | |||||||
Inventory | 317,000 | 364,900 | |||||||
Investment in Stargell Stock | 1,243,800 | ||||||||
Investment in Stargell Bonds | 985,000 | ||||||||
Investment in Posey Bonds | 200,000 | ||||||||
Land | 1,241,000 | 518,000 | |||||||
Buildings & Equipment | 2,940,000 | 1,915,000 | |||||||
Cost of Goods Sold | 1,829,000 | 426,000 | |||||||
Depreciation & Amortization | 184,000 | 65,000 | |||||||
Other Expenses | 632,000 | 206,000 | |||||||
Dividends Declared | 61,000 | 51,000 | |||||||
Accumulated Depreciation | $1,050,000 | $597,000 | |||||||
Current Payables | 699,190 | 213,000 | |||||||
Bonds Payable | 200,000 | 1,000,000 | |||||||
Premium on Bonds Payable | 3,000 | ||||||||
Common Stock | 910,000 | 487,000 | |||||||
Premium on Common Stock | 610,000 | 267,000 | |||||||
Retained Earnings, January 1 | 2,848,950 | 457,000 | |||||||
Sales | 3,010,000 | 801,000 | |||||||
Other Income | 143,000 | 50,000 | |||||||
Income from Stargell Corp. | 132,660 | ||||||||
Total | $9,603,800 | $9,603,800 | $3,875,000 | $3,875,000 |
Posey Manufacturing Company acquired 90% of Stargell Corporation’s outstanding common stock on December 31, 20X5, for $1,116,900. At that date, the fair value of the noncontrolling interest was $124,100, and Stargell reported common stock outstanding of $487,000, premium on common stock of $267,000, and retained earnings of $407,000. The book values and fair values of Stargell’s assets and liabilities were equal except for land, which was worth $30,000 more than its book value. | ||||||||||||
On April 1, 20X6, Posey issued at par $200,000 of 10% bonds directly to Stargell; interest on the bonds is payable March 31 and September 30. On January 2, 20X7, Posey purchased all of Stargell’s outstanding 10-year, 12% bonds from an unrelated institutional investor at 98. The bonds originally had been issued on January 2, 20X1, for 101. Interest on the bonds is payable December 31 and June 30. | ||||||||||||
Since the date it was acquired by Posey Manufacturing, Stargell has sold inventory to Posey on a regular basis. The amount of such intercompany sales totaled $67,000 in 20X6 and $83,000 in 20X7, including a 30% gross profit. All inventory transferred in 20X6 had been resold by December 31, 20X6, except inventory for which Posey had paid $18,000 and did not resell until January 20X7. All inventory transferred in 20X7 had been resold at December 31, 20X7, except merchandise for which Posey had paid $16,667 | ||||||||||||
As of December 31, 20X7, Stargell had declared but not yet paid its fourth-quarter dividend of $12,750. Both Posey and Stargell use straight-line depreciation and amortization, including the amortization of bond discount and premium. On December 31, 20X7, Posey’s management reviewed the amount attributed to goodwill as a result of its purchase of Stargell common stock and concluded that an impairment loss in the amount of $25,000 had occurred during 20X7 and should be shared proportionately between the controlling and noncontrolling interests. Posey uses the fully adjusted equity method to account for its investment in Stargell. |
Goodwill as of January 1, 20X7: | ||||||
Fair value of Consideration given by Posey | 1,116,900 | |||||
Fair value of non controlling interest at acquisition | 124,100 | |||||
Total | 1,241,000 | |||||
Book Value of net assets at acquisition | 1,217,000 | land plus building minus current payables minus the bond payables(with interest) | ||||
Differential at acquistion | 24,000 | |||||
Increase in fair value of land | 30,000 | |||||
Goodwill at acquisition | 54,000 | |||||
Stargell stockholders' equity, January 1, 20X7: | ||||||
Common stock | 487,000 | |||||
Premium on common stock | 267,000 | |||||
Retained Earnings | 407,000 | |||||
Stockholders' Equity January 1, 2017 | 1,161,000 | |||||
Posey's ownership share | ||||||
Book Value of shares held by Posey | 1,243,800 | |||||
Differential at January 1 2017 | 82,800 | |||||
Inventory sale defferred | ||||||
Balance in Investment in Stargell Stock account, | 18,000 | |||||
January 1, 20X7 | ||||||
Gain | ||||||
Gain on constructive retirement of Stargell's bonds: | ||||||
Original proceeds from issuance of Stargell bonds | 1,000,000 | |||||
Premium amortized to January 1 2017 | 6,000 | |||||
($10,000/10)x 6 | ||||||
Book value of bonds at constructive retirement | 1,006,000 | |||||
Price paid for Stargell bonds by Posey | 985,000 | |||||
Gain on constructive retirement of Stargell's bonds | 21,000 | |||||
Stargell's 20X7 net income * | 154,000 | |||||
Add: 2016 intercompany profit realized in 2017 | 4,154 | USD 18000 includes 30% profit | ||||
Constructive gain on retirement of bonds | 21,000 | |||||
Less: Unrealized intercompany profit on 2017 transfer | 3,846 | USD 16667 includes 30% profit | ||||
Impairment of goodwill | 25,000 | |||||
Subsidiary income to be apportioned | 150,308 | |||||
Noncontrolling interest's share | 10% | |||||
Income to noncontrolling interest | 15,031 | |||||
Net income | ||||||
Sales | 801,000 | |||||
other income | 50,000 | |||||
Total Revenue | 851,000 | |||||
Expenses | ||||||
Cost of Goods sold | 426,000 | |||||
other expenses | 206,000 | |||||
Depreciation and amortisation | 65,000 | |||||
Total expenses | 697,000 | |||||
Net income | 154,000 |