Question

Putt Corporation acquired 70 percent of Slice Company’s voting common stock on January 1, 20X3, for...

Putt Corporation acquired 70 percent of Slice Company’s voting common stock on January 1, 20X3, for $158,900. Slice reported common stock outstanding of $100,000 and retained earnings of $85,000. The fair value of the noncontrolling interest was $68,100 at the date of acquisition. Buildings and equipment held by Slice had a fair value $25,000 higher than book value. The remainder of the differential was assigned to a copyright held by Slice. Buildings and equipment had a 10-year remaining life and the copyright had a 5-year life at the date of acquisition.

Trial balances for Putt and Slice on December 31, 20X5, are as follows:

Putt Corporation Slice Company
Debit Credit Debit Credit
Cash $ 15,850 $ 58,000
Accounts Receivable 65,000 70,000
Interest & Other Receivables 30,000 10,000
Inventory 150,000 180,000
Land 80,000 60,000
Buildings & Equipment 315,000 240,000
Bond Discount 15,000
Investment in Slice Company 157,630
Cost of Goods Sold 375,000 110,000
Depreciation Expense 25,000 10,000
Interest Expense 24,000 33,000
Other Expense 28,000 17,000
Dividends Declared 30,000 5,000
Accumulated
Depreciation—Buildings and Equipment $ 120,000 $ 60,000
Accounts Payable 61,000 28,000
Other Payables 30,000 20,000
Bonds Payable 250,000 300,000
Common Stock 150,000 100,000
Additional Paid-in Capital 30,000
Retained Earnings 165,240 100,000
Sales 450,000 190,400
Other Income 28,250
Gain on Sale of Equipment 9,600
Income from Slice Company 10,990
Total $ 1,295,480 $ 1,295,480 $ 808,000 $ 808,000


Putt sold land it had purchased for $21,000 to Slice on September 20, 20X4, for $32,000. Slice plans to use the land for future plant expansion. On January 1, 20X5, Slice sold equipment to Putt for $91,600. Slice purchased the equipment on January 1, 20X3, for $100,000 and depreciated it on a 10-year basis, including an estimated residual value of $10,000. The residual value and estimated economic life of the equipment remained unchanged as a result of the transfer, and both companies use straight-line depreciation. Assume Putt uses the fully adjusted equity method.

Required:
a. Compute the amount of income assigned to the noncontrolling interest in the consolidated income statement for 20X5.
  

Homework Answers

Answer #1

a.

Income assigned to noncontrolling interest:

Net income of Slice

$ 30,000

Gain on sale of equipment to parent

$9,600

Gain realized prior to 20X5

(1,200)

(8,400)

Amortization of differential:

Buildings and equipment ($25,000 / 10 years)

(2,500)

Copyright ($17,000 / 5 years)

  (3,400)

Realized income

$15,700

Portion of ownership held

x   0.30

Income to noncontrolling interest

$  4,710

Gain on sale of equipment to parent:

Sale price to Putt

$91,600

Purchase price

$100,000

Accumulated depreciation

[($100,000 - $10,000)/10 years] x 2 years

(18,000)

(82,000)

Gain on sale

$ 9,600

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