Answered: acquired 80 percent of the outstanding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

On January 1, 2017, Doone Corporation acquired 80 percent of the outstanding voting stock of Rockne Company for $592,000 consideration. At the acquisition date, the fair value of the 20 percent noncontrolling interest was $148,000 and Rockne's assets and liabilities had a collective net fair value of $740,000. Doone uses the equity method in its internal records to account for its investment in Rockne. Rockne reports net income of $260,000 in 2018. Since being acquired, Rockne has regularly supplied inventory to Doone at 25 percent more than cost. Sales to Doone amounted to $320,000 in 2017 and $420,000 in 2018. Approximately 30 percent of the inventory purchased during any one year is not used until the following year.

What is the noncontrolling interest's share of Rockne's 2018 income?
Prepare Doone's 2018 consolidation entries required by the intra-entity inventory transfers.

### Consolidation Worksheet Entries

#### Instructional Task:
1. **Prepare Entry \*G**

#### Important Note:
- **Enter debits before credits.**

#### Data Entry Table:
| Transaction | Accounts | Debit | Credit |
|-------------|----------|-------|--------|
| 1 | | | |
| | | | |
| | | | |
| | | | |
| | | | |

The table provided is a template for entering transactions into a consolidation worksheet. Here are the components described in detail:

1. **Transaction Column**:
- This column represents the sequence number of the transactions to be recorded.

2. **Accounts Column**:
- This column is for specifying the names or titles of the accounts affected by the transactions.

3. **Debit Column**:
- This column is for entering the debit amounts for the respective accounts.

4. **Credit Column**:
- This column is for entering the credit amounts for the respective accounts.

Users are instructed to enter debit amounts before credit amounts, adhering to standard accounting practices.

**Case Study: Doone Corporation and Rockne Company Acquisition**

**Background:**
On January 1, 2017, Doone Corporation acquired 80 percent of the outstanding voting stock of Rockne Company for $592,000 as consideration. At the acquisition date, the fair value of the 20 percent noncontrolling interest was $148,000. Rockne Company's assets and liabilities had a collective net fair value of $740,000 at that time. Doone Corporation uses the equity method in its internal records to account for its investment in Rockne Company.

**Financial Data for 2018:**
- Rockne reported a net income of $260,000 in 2018.
- Since the acquisition, Rockne has regularly supplied inventory to Doone, priced 25 percent above cost.
- Sales to Doone amounted to $320,000 in 2017 and $420,000 in 2018.
- Approximately 30 percent of the inventory purchased in a given year is held over to the following year.

**Questions:**
a. What is the noncontrolling interest's share of Rockne's 2018 income?
b. Prepare Doone's 2018 consolidation entries required for the intra-entity inventory transfers.

**Answer to Question (a):**
The noncontrolling interest's share of Rockne's 2018 income is calculated as follows:

\[ \text{Noncontrolling Interest Share} = \text{Net Income} \times \text{Noncontrolling Interest Percentage} \]
\[ \text{Noncontrolling Interest Share} = \$260,000 \times 20\% \]
\[ \text{Noncontrolling Interest Share} = \$260,000 \times 0.20 \]
\[ \text{Noncontrolling Interest Share} = \$52,000 \]

However, the transcription specifies a final figure:

\[ \boxed{\$50,800} \]

This indicates there might be adjustments or specific considerations applied that altered the straightforward calculation.

**Answer to Question (b):**
The answer to part B is not provided in the provided text.

**Diagram Explanation:**

- **Tab Layout:** The tabs are provided for the two parts of the question, labeled as "Required A" and "Required B." Only "Required A" is shown selected, indicating the noncontrolling interest's share.
- **Noncontrolling Interest Share Calculation Box:** This box shows the final computation ($50

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions