Question
In: Accounting
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
Solutions
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 |
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