Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $802,720 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $1,003,400 although Sierra’s book value was only $690,000. Also, several individual items on Sierra’s financial records had fair values that differed from their book values as follows:
Book Value | Fair Value | |
---|---|---|
Land | $ 65,000 | $ 290,000 |
Buildings and equipment (10-year remaining life) |
287,000 | 263,000 |
Copyright (20-year remaining life) | 122,000 | 216,000 |
Notes payable (due in 8 years) | (176,000) | (157,600) |
For internal reporting purposes, Padre, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2018, for both companies.
Padre | Sierra | |
---|---|---|
Revenues | $(1,394,980) | $ (684,900) |
Cost of goods sold | 774,000 | 432,000 |
Depreciation expense | 274,000 | 11,600 |
Amortization expense | 0 | 6,100 |
Interest expense | 52,100 | 9,200 |
Equity in income of Sierra | (177,120) | –0– |
Net income | $ (472,000) | $ (226,000) |
Retained earnings, 1/1/18 | $(1,275,000) | $ (530,000) |
Net income | (472,000) | (226,000) |
Dividends declared | 260,000 | 65,000 |
Retained earnings, 12/31/18 | $(1,487,000) | $ (691,000) |
Current assets | $ 856,160 | $ 764,700 |
Investment in Sierra | 927,840 | –0– |
Land | 360,000 | 65,000 |
Buildings and equipment (net) | 909,000 | 275,400 |
Copyright | –0– | 115,900 |
Total assets | $ 3,053,000 | $ 1,221,000 |
Accounts payable | $ (275,000) | $ (194,000) |
Notes payable | (541,000) | (176,000) |
Common stock | (300,000) | (100,000) |
Additional paid-in capital | (450,000) | (60,000) |
Retained earnings (above) | (1,487,000) | (691,000) |
Total liabilities and equities | $(3,053,000) | $(1,221,000) |
At year-end, there were no intra-entity receivables or payables.
Prepare a worksheet to consolidate the financial statements of these two companies
I just need help explaining the Noncontrolling interest in Sierra, see below....
Noncontrolling interest in Sierra | $ 231,960 | |||||||||||
Correct! | ||||||||||||
(1003400*0.2)+44280-13000 |
(1003400*0.2)+44280-13000 = 231,960 added figures
Ans:
Non controlling Interest will be calculated as follows.
% of Non controlling interest * Book Value + % of Non controlling interest * Current year Net Income - % of Non controlling interest * Dividend declared.
For the above situation it is seems that. company has reported net income of : $44,280/20% = $221,400
and declared dividend of : $13,000/20%= $65,000.
In such case not controlling interest in Sierra will be:
20%*$1,003,400 + 20%*$221,400 - 20%*$65,000 = $231,960.
For any other clarification please ask in the comment box.
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