Question

17)

On 1/1/15, Pom Company Acquired 90% of the voting common stock of Star Co. for $91,700,000 in cash, The FV of the NCI in Star at date of acquisition was 6,300,000. Star’s net book value is $14,000,000 at date of acquisition. Star’s assets and liabilities were reported on its books at values approximating FV, except its P&E (10 yr. life, S-L) was overvalued by $25,000,000 and Star had previously unreported intangible assets with a FV of $40,000,000 (5 yr. life, S-L).

Pom uses the complete equity method on its books to account for its investment in Star. Goodwill recognized in this acquisition was impaired a total of $2,000,000 in 2015 and 2016, and by $500,000 in 2017. Now it is 12/31/2017, the fiscal year end. Below is Star’s trial balance at 12/31/2017.

                                                                                                Debit (Credit)

Current assets $ 28,200,000

P&E, Net 188,000,000

Intangible assets 2,000,000

Liabilities (180,000,000)

Capital stock (1,000,000)    

Retained earnings, 1/1/2017 (29,500,000)

AOCI (500,000)

Dividends paid 400,000

Sales revenues (24,000,000)

COGS 10,000,000

Operating expenses 6,500,000

Other comprehensive income (100,000)

On the 2017 consolidation work paper, the NCI in net income of Star is

a) $150,000

b) $175,000

c) $750,000

d) $200,000

Answer 1

The Answer is $150,000.

Below is the working

Star co income (7,500,000*10%)	$    750,000.00
Plant and equipment depreciation	$    250,000.00
Identifable intangible Amortization	$ (800,000.00)
Goodwill Impariment Loss	$    (50,000.00)
NCI in net income of Star	$    150,000.00

Calculation of Total net income

Sales Revenue	24,000,000.00
COGS	(10,000,000.00)
Operating Expenses	(6,500,000.00)
Net Income	7,500,000.00