Question

Peppard acquires 90% of the voting stock of Schultz on January 1, 2020 for $5,000. The...

Peppard acquires 90% of the voting stock of Schultz on January 1, 2020 for $5,000. The fair value of the noncontrolling interest is $550. Schultz’s equity is reported at $4,800 at the date of acquisition. Its net assets are reported at amounts approximating fair value, but it has previously unreported identifiable intangible assets (5-year life, straight-line), valued at $1,000. Peppard uses the complete equity method to account for its investment. Schultz reports net income of $300 for 2020.

REQUIRED:

What is meant by non-controlling interest?
What journal entry does Peppard record on its books for its investment in Schultz?

Business   Accounting   
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Answer #1

1. Non controlling interest, otherwise known as minority interest, is when a shareholder, or a group of shareholders, have a minority shareholding, and hold no control over decisions made.

From the perspective of a parent company, non controlling interest is the shares held by the other shareholders, where the parent company holds a substantial percentage of the subsidiary.

2.

Consideration 5000
Non controlling interest 550
Total 5550
Less: Equity (4800)
Less: Identifiable intangible assets (1000)
Goodwill (250)

The journal entry to be passed is:

Net assets 5800
Cash 5000
Non controlling interest 550
Goodwill 250
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