Ch3(1)

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School

University of Houston, Downtown *

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Course

6315

Subject

Accounting

Date

Apr 3, 2024

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pdf

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3/28/24, 10:06 PM Assignment Print View https://ezto.mheducation.com/api/caa/activity/C15Print?jwt=eyJhbGciOiJSUzI1NiJ9.eyJlbnZpcm9ubWVudCI6InByb2QiLCJpc3MiOiJlenQiLCJwcmlud… 2/4 1. Award: 25 out of 25.00 points Phone Corporation owns 75 percent of Smart Company’s common stock, acquired at underlying book value on January 1, 20X4. At the acquisition date, the book values and fair values of Smart’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 25 percent of the total book value of Smart. The income statements for Phone and Smart for 20X4 include the following amounts: Phone Corporation Smart Company Sales $ 542,000 $ 167,000 Dividend Income 7,500 Total Income $ 549,500 $ 167,000 Less: Cost of Goods Sold $ 365,000 $ 76,000 Depreciation Expense 30,000 18,000 Other Expenses 55,000 21,000 Total Expenses $ 450,000 $ 115,000 Net Income $ 99,500 $ 52,000 Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $10,000 in 20X4. Required: a. What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting? b. What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4? c. What amount should Phone report as consolidated net income for 20X4? References Worksheet Learning Objective: 03-03 Understand and explain differences in the consolidation process when the subsidiary is not wholly owned.

3/28/24, 10:06 PM Assignment Print View https://ezto.mheducation.com/api/caa/activity/C15Print?jwt=eyJhbGciOiJSUzI1NiJ9.eyJlbnZpcm9ubWVudCI6InByb2QiLCJpc3MiOiJlenQiLCJwcmlud… 3/4 Difficulty: 2 Medium Learning Objective: 03-04 Make calculations for the consolidation of a less-than-wholly- owned subsidiary. Phone Corporation owns 75 percent of Smart Company’s common stock, acquired at underlying book value on January 1, 20X4. At the acquisition date, the book values and fair values of Smart’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 25 percent of the total book value of Smart. The income statements for Phone and Smart for 20X4 include the following amounts: Phone Corporation Smart Company Sales $ 542,000 $ 167,000 Dividend Income 7,500 Total Income $ 549,500 $ 167,000 Less: Cost of Goods Sold $ 365,000 $ 76,000 Depreciation Expense 30,000 18,000 Other Expenses 55,000 21,000 Total Expenses $ 450,000 $ 115,000 Net Income $ 99,500 $ 52,000 Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $10,000 in 20X4. Required: a. What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting? b. What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4? c. What amount should Phone report as consolidated net income for 20X4? Explanation: a. Smart should report income from its subsidiary of $39,000 ($52,000 × 0.75) rather than dividend income of $7,500. b. A total of $13,000 ($52,000 × 0.25) should be assigned to the noncontrolling interest in the 20X4 consolidated income statement. c. Consolidated net income of $144,000 should be reported for 20X4, computed as follows:

3/28/24, 10:06 PM Assignment Print View https://ezto.mheducation.com/api/caa/activity/C15Print?jwt=eyJhbGciOiJSUzI1NiJ9.eyJlbnZpcm9ubWVudCI6InByb2QiLCJpc3MiOiJlenQiLCJwcmlud… 4/4 Reported net income of Phone $ 99,500 Less: Dividend income from Smart (7,500) Operating income of Phone $ 92,000 Net income of Smart 52,000 Consolidated net income $ 144,000

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