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On January 1, 2018, Johnsonville Enterprises, Inc. acquired 80 percent of Stayer Company’s outstanding common shares...

On January 1, 2018, Johnsonville Enterprises, Inc. acquired 80 percent of Stayer Company’s outstanding common shares in exchange for $3,000,000 cash. The price paid for the 80 percent ownership interest was proportionately representative of the fair value of all of Stayer’s shares. At acquisition date, Stayer’s books showed assets of $4,200,000 and liabilities of $1,600,000. The recorded assets and liabilities had fair values equal to their individual book values except that a building (10-year remaining life) with book value of $195,000 had an appraised fair value of $345,000. Stayer’s books showed a $175,500 carrying amount for this building at the end of 2018. Also, at acquisition date Stayer possessed unrecorded technology processes (zero book value) with an estimated fair value of $1,000,000 and a 20-year remaining life. For 2018 Johnsonville reported net income of $650,000 (before recognition of Stayer’s income), and Stayer separately reported earnings of $350,000. During 2018, Johnsonville declared dividends of $85,000 and Stayer declared $50,000 in dividends. Compute the amounts that Johnsonville Enterprises should report in its December 31, 2018, consolidated financial statements for the following items: A. Stayer's building (net of accumulated depreciation) B. Stayer's technology processes (net of accumulated amortization C. Net income attributable to the noncontrolling interest D. Net income attributable to controlling interest E. Noncontrolling interest in Stayer

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Expert Solution

A) Stayer's Building (Net of Accum. Depreciation) :-

Depreciation = Fair Value at Acquisition date / Remaining Life

= $345000 / 10 years

= $34500

Value of Building on Dec. 31, 2018 (after Depreciation) = $345000 - $34500

= $310500

B) Value of Technology Processes :-

amortization for 2018 = Fair value at Acquisition date / Remaining Life

= $1000000 / 20 years

= $50000

Value of Technology Processes = Fair Value at Acquisition date - Amortization for 2018

= $1000000 - $50000

= $950000

C) Calculation for Net Income Attributable to non-Controlling interest :-

Particulars Amount($)
Company Stayer's Reported Earnings 350000
Less : Excess fair Value Amortization :-
Technology Process (50000)
Building (($345000-$195000)/10) (15000)
Company Stayer's Adjusted Earnings 285000
Non-controlling interest in Company Stayer's Earnings *20%
Net Income Attributable to non-controlling interest 57000

D). Net Income Attributable to Controlling Interest :-

Particulars Amount($) Amount($)
Johnsonville's Net Income 650000
Stayer's Earnings 350000
Less : Excess fair value amortization ;-
Technology Process (50000)
Building (Above) (15000)
Stayer's Adjused Earnings 285000
Johnsonville's share in Stayer's Earnings(285000*80%) 228000
Net Income attributable to controlling Interest 878000

E) Non-Controlling Interest in Stayer :-

Particulars Amount($)
Fair Value of Stayer on acquisition ($3000000/80%) 3750000
Non-Controlling Interest ($3750000*20%) 750000
Add : Non-Controlling Interest in Net income 57000
Less : Non-Controlling Interest in Dividend ($50000*20%) (10000)
Non-Controlling Interest on Dec.31, 2018 797000

ekkarill92 answered 1 year ago
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