Question

On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company's capital stock for $520,000 in cash and other assets. Nephew had a book value of $622,000 and the 20 percent noncontrolling interest fair value was $130,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $374,000. Uncle's appropriately adjusted book value as of that date was $1,180,000.

Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $15,000 in dividends to shareholders each year and Nephew distributes $2,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

Year	Uncle Company			Nephew Company
2016	$	173,000		$	30,800
2017		195,000			42,800
2018		220,000			65,200
a) Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's income recognized by Uncle in 2018? b) What is the net income attributable to the noncontrolling interest for 2018?

Answer 1

B)

To the outside owners,the 4500 intra company dividend(15000×30%) declared by uncle are viewed as income because the book value of nephew increase

Thus the Non controlling interest share of income is computed as folloWS;

Nephew accrual based income(above)	62400
Dividend declared by uncle to nephew	4500
Income to outside owners	66900
Non controlling interest	20%
Non controlling interest share in nephew net income	13380