Company P purchase an 80% interest in Company S on January 1, 2015, for $480,000. Company S had equity of $450,000 on that date. Any excess of cost over book value was attributed to equipment with a 10-year life. On July 1, 2020, Company P purchased another 10% interest for $160,000. Company S's equity was $550,000 on Jauary 1, 2020, and it earned $50,000 evenly during 2020. Company P had internally generated net income of $120,000 during 2020. Calculate consolidated income for 2020 and the distribution of consolidated income to the noncontrolling and controlling interests.
Company P purchase an 80% interest in Company S on January 1, 2015, for $480,000. Company S had equity of $450,000 on that date. Any excess of cost over book value was attributed to equipment with a 10-year life. On July 1, 2020, Company P purchased another 10% interest for $160,000. Company S's equity was $550,000 on Jauary 1, 2020, and it earned $50,000 evenly during 2020. Company P had internally generated net income of $120,000 during 2020. Calculate consolidated income for 2020 and the distribution of consolidated income to the noncontrolling and controlling interests.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Company P purchase an 80% interest in Company S on January 1, 2015, for $480,000. Company S had equity of $450,000 on that date. Any excess of cost over book value was attributed to equipment with a 10-year life. On July 1, 2020, Company P purchased another 10% interest for $160,000. Company S's equity was $550,000 on Jauary 1, 2020, and it earned $50,000 evenly during 2020. Company P had internally generated net income of $120,000 during 2020. Calculate consolidated income for 2020 and the distribution of consolidated income to the noncontrolling and controlling interests.
Expert Solution
Step1-Calculate distribution of consolidated income to the non-controlling and controlling interests
| Particulars | company fair value | Parent company price (80%) | Non- controlling interests(20%) |
| Subsidiary company Fair value | $600,000 | $480,000 | $120,000 |
| Less: Book value of interest acquired (equity) | $450,000 | $450,000 | $450,000 |
| Interest acquired | 80% | 20% | |
| Book value | $360,000 | $90,000 | |
| Excess of fair value over Book value | $150,000 | $120,000 | $30,000 |
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