14 May WHAT IS THE SUBSIDIARY’S INCOME RECOGNIZED BY UNCLE IN 2014?
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company’s capital stock
for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20 percent
noncontrolling interest fair value was $125,000 on that date. On January 1, 2011, Nephew had
acquired 30 percent of Uncle for $280,000. Uncle’s appropriately adjusted book value as of that
date was $900,000.
Separate operating income figures (not including investment income) for these two
companies follow. In addition, Uncle declares and pays $20,000 in dividends to shareholders
each year and Nephew distributes $5,000 annually. Any excess fair-value allocations are
amortized over a 10-year period.
Year
2012
2013
2014
Uncle
Nephew
Company Company
$ 90,000 $30,000
120,000
40,000
140,000
50,000
a.
Assume that Uncle applies the equity method to account for this investment in Nephew. What
is the subsidiary’s income recognized by Uncle in 2014?
b.
What is the non controlling interest’s share of 2014 consolidated net income
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