Question

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common...

Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2019. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired.

Demers earns income and pays dividends as follows:

2019 2020 2021
Net income $ 100,000 $ 120,000 $ 130,000
Dividends 40,000 50,000 60,000

Assume the partial equity method is applied.

1. How much does Pell record as Income from Demers for the year ended December 31, 2019?

Multiple Choice

a. $80,000.

b. $74,400.

c. $73,000.

d. $42,400.

e. $41,000.

2. How much does Pell record as income from Demers for the year ended December 31, 2020?

Multiple Choice

a. $90,400.

b. $89,000.

c. $50,400.

d. $96,000.

e. $56,000.

3. How much does Pell record as income from Demers for the year ended December 31, 2021?

Multiple Choice

a. $98,400.

b. $56,000.

c. $104,000.

d. $97,000.

e. $50,400.

4. Compute the noncontrolling interest in the net income of Demers at December 31, 2019.

Multiple Choice

a. $20,000.

b. $12,000.

c. $18,600.

d. $10,600.

e. $14,400.

Business   Accounting   
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Homework Answers

Answer #1

1. Controlling Interest Income for 2019= $100000*80% = $80000  

Less Excess Fair value amortization (7000*80%) = $5600

Income from Demers or the year ended December 31,2019 = $74400

Option B is correct.

2.

Controlling Interest Income for 2020= $120000*80% = $96000  

Less Excess Fair value amortization (7000*80%) = $5600

Income from Demers or the year ended December 31,2020 = $90400

Option A is correct

3.

Controlling Interest Income for 2021= $130000*80% = $104000

Less Excess Fair value amortization (7000*80%) = $5600

Income from Demers or the year ended December 31,2021 = $98400

Option A is correct

4. Non Controlling Interest for December 2019 = $100000*20%= $20000

Less: Excess fair value amortization = $7000*20% = $1400

Non Controlling Interest in income for December 2019 = $18600

Option C is correct

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