Question

The trial balance of Garner Company at January 1, 2015 is as follows, along with estimated fair values of its assets and liabilities: Book Value Dr (Cr) Fair Value Dr (Cr) Current assets $ 200,000 $ 300,000 Plant & equipment, net 28,000,000 35,000,000 Investment in HTM securities 1,000,000 3,000,000 Client contracts 0 5,000,000 Liabilities (15,000,000) (15,200,000) Capital stock (14,000,000) -- Retained earnings (200,000) -- Total $ 0 Information on the revalued assets and liabilities is as follows: Revaluation Remaining Life as of January 1, 2015 Current assets (inventory) FIFO Plant & equipment 20 years, straight-line Investment in securities Sold in 2018 Client contracts 5 years, straight-line Liabilities 3 years, straight-line Goodwill No impairment Brown Corporation paid $80,000,000 in cash to acquire 90% of the voting stock of Garner Company on January 1, 2015. Goodwill generated from the acquisition equaled $58,900,000. The noncontrolling interest was valued at $7,000,000 at the date of acquisition. It is now December 31, 2018, four years after the acquisition. Garner reported net income of $4,000,000 in 2018 and declared no dividends. Garner’s January 1, 2018 retained earnings balance is $6,200,000. Brown uses the complete equity method to account for the investment in Garner on its own books

Required a) Calculate 2018 equity in net income

b) Calculate 2018 noncontrolling interest in net income.

Answer 1

Fair value of 90% voting stock	$80,000,000
Fair value of 10% voting stock	$7,000,000
Total fair value	$87,000,000
Less: Common Stock	$14,000,000
Retained earnings	$200,000
Excess fair value over cost	$72,800,000
Excess allocated to:
Plant	$7,000,000
Inventory	$100,000
Investment	$2,000,000
Client contracts	$5,000,000
Liabilities	$200,000
Goodwill	$58,900,000
Depreciation on Plant per year (7000000/20)	$350,000
Amortization of Client contracts(5000000/5)	$1,000,000
Garners reported net profit in 2018	$4,000,000
Less: Depreciation of plant	$350,000
Amortization of client contract	$1,000,000
Net income after adjustment	$2,650,000
Equity in net income (90%)	$2,385,000
Non controlling interest in net income	$265,000