In: Accounting
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.
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 | ||