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On January 1, 2017, Harrison, Inc., acquired 90 percent of Starr Company in exchange for $1,125,000...

On January 1, 2017, Harrison, Inc., acquired 90 percent of Starr Company in exchange for $1,125,000 fair-value consideration. The total fair value of Starr Company was assessed at $1,200,000. Harrison computed annual excess fair-value amortization of $8,000 based on the difference between Starr’s total fair value and its underlying book value. The subsidiary reported net income of $70,000 in 2017 and $90,000 in 2018 with dividend declarations of $30,000 each year. Apart from its investment in Starr, Harrison had net income of $220,000 in 2017 and $260,000 in 2018.

What is the consolidated net income in each of these two years?

What is the balance of the noncontrolling interest in Starr at December 31, 2018?

Solutions

Expert Solution

Solution:-

●》Calculation of consolidated net income in each of these two years are as follows:-

PARTICULARS 2017 2018
Harrison Income $220,000 $260,000
Starr Income $70,000 $90,000
Acquisition date excess fair value amortisation ($8000) ($8000)
Consolidated Net Income $282,000 $342,000

●》Calculation of Balance Non-controlling interest in star as on 31st December, 2018

Particulars Amount
Starr fair value $1,200,000

Fair value of consideration transferred

Non-controlling interest fair value

($1,125,000)

$75000
Non-controlling interest fair value - January 1, 2018 (As calculated above) $75000
2017 income to Non-controlling interest [($70000 - $8000) × 10%] $6200
2017 dividends to Non-controlling interest ($3000)
Non-controlling interest reported as on December 31, 2017 $78,200
2018 income to Non-controlling interest [($90,000 - $8000) × 10%] $8200
2018 dividends to Non-controlling interest ($3000)
Non-controlling interest reported value as on December 31, 2018 $83400

ekkarill92 answered 1 year ago
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