Question

Pin Corporation paid $4,500,000 for a 90 percent interest in San Corporation on January 1, 2016; San’s total book value was $4,500,000. The excess was allocated as follows: $150,000 to undervalued equipment with a three-year remaining useful life and $350,000 to goodwill. The income statements of Pin and San for 2016 are summarized as follows (in thousands):

                                                                                    Pin                               San

                        Sales                                                    $9,000                         $5,200

                        Income from San                                      450                         

                        Cost of sales                                         (5,000)                         (3,600)

                        Depreciation expense                         (1,000)                            (520)

                        Other expenses                                   (1,450)                            (580)

                        Net income                                         $2,000                             500

Required:

1. Calculate the goodwill that should appear in the consolidated balance sheet of Pin and Subsidiary at December 31, 2016.
2. Calculate the following 3 items for 2016:

• Consolidated net income for 2016
• Controlling share of consolidated net income for 2016
• Noncontrolling share of consolidated net income for 2016

Answer 1

Answer 1

Fair value of company (4500000/90%)	5,000,000
Less: book value of company	4,500,000
Excess fair value	500,000
Less: Excess fair value allocated to equipment	150,000
Goodwill hat should appear in the consolidated balance sheet	350,000

Answer 2 to 4

Answer 2	Consolidated net income for 2016				2,000,000
Answer 4	Noncontrolling share of consolidated net income ((500000-50000)*10%)				45,000
Answer 3	Controlling share of consolidated net income for 2016				1,955,000

	Pin	San	Adj.	Total
Sales	9,000,000	5,200,000		14,200,000
Cost of sales	(5,000,000)	(3,600,000)		(8,600,000)
Depreciation expense (150000/3)	(1,000,000)	(520,000)	(50,000)	(1,570,000)
Other expenses	(1,450,000)	(580,000)		(2,030,000)
Net income				2,000,000