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Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common...

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2014. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows:

2014 2015 2016

Net Income: 100,000 120,000 130,000

Dividends 40,000 50,000 60,000

Assume the EQUITY METHOD is applied. Compute the non-controlling interest in the net income of Demers at December 31, 2016.

A. $20,400.

B. $24,600.

C. $26,000.

D. $14,000.

E. $12,600.

Solutions

Expert Solution

Working Notes:
CALCULATION OF SHARE % OF NON CONTROLLING SHAREHOLDERS
Total Shares 100%
Less: Pell Company Acqires 80%
Balance Shares is for non controlling Shareholders 20%
Solution:
CALCULATION OF NON CONTROLLING INTEREST IN THE NET INCOME OF DEMERS
Net Income of the year 2016 $                 1,30,000
Less: Dividend Paid in Cash $                     60,000
Balance avaialble for Shareholder's after distribution of Dividends $                     70,000
Less: Shares of Pell Company ($80,000 X 80%) $                     56,000
Balance in net income is for Non-Controlling interest $                     14,000
Answer = Option D = $ 14,000

ekkarill92 answered 1 year ago
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