### Investment and Equity Accounting Case Study**Scenario Overview:**On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for $510,000 in cash and other assets. At that time, Nephew had a book value of $617,500, and the 20 percent noncontrolling interest fair value was $127,500. On January 1, 2021, Nephew had also acquired 30 percent of Uncle for $330,250. Uncle's appropriately adjusted book value as of that date was $1,067,500.**Income Information:**Separate operating income figures (excluding investment income) for the two companies follow. Additionally, Uncle declares and pays $20,000 in dividends to shareholders each year, and Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period.**Operating Income Data:**| Year | Uncle Company | Nephew Company ||------|---------------|----------------|| 2019 | $92,000 | $31,800 || 2020 | $159,000 | $48,400 || 2021 | $167,000 | $51,400 |**Questions for Analysis:**1. **Subsidiary Income Recognized:** Assume that Uncle applies the equity method to account for its investment in Nephew. What is the subsidiary's income recognized by Uncle in 2021?2. **Net Income Attributable to Noncontrolling Interest:** What is the net income attributable to the noncontrolling interest for 2021?**Answer Table:**| Amount | ||------------------------------------------------|---------------------|| **a. Subsidiary income recognized** | **[To be calculated]** || **b. Noncontrolling interest's share of income** | **[To be calculated]** |**Explanation:**- To calculate the subsidiary income recognized by Uncle, use the equity method. This involves recognizing Uncle’s share (80%) of Nephew's net income. - To determine the net income attributable to noncontrolling interest, apply the noncontrolling interest percentage (20%) to Nephew's net income.**Further Explanation of Figures:**- Uncle's operating income has seen an increase from $92,000 in 2019 to $167,000 in 2021.- Nep

On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for $510,000 in cash and other assets. Nephew had a book value of $617,500, and the 20 percent noncontrolling interest fair value was $127,500 on that date. On January 1, 2021, Nephew had acquired 30 percent of Uncle for $330,250. Uncle's appropriately adjusted book value as of that date was $1,067,500. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $20,000 in dividends to shareholders each year and Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Uncle Company Year 2019 $ 92,000 2020 2021 159,000 167,000 a. b. Nephew Company $ 31,800 48,400 51,400 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 2021? b. What is the net income attributable to the noncontrolling interest for 2021? Subsidiary income recognized Noncontrolling interest's share of income Amount

On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for $510,000 in cash and other assets. Nephew had a book value of $617,500, and the 20 percent noncontrolling interest fair value was $127,500 on that date. On January 1, 2021, Nephew had acquired 30 percent of Uncle for $330,250. Uncle's appropriately adjusted book value as of that date was $1,067,500. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $20,000 in dividends to shareholders each year and Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Uncle Company Year 2019 $ 92,000 2020 2021 159,000 167,000 a. b. Nephew Company $ 31,800 48,400 51,400 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 2021? b. What is the net income attributable to the noncontrolling interest for 2021? Subsidiary income recognized Noncontrolling interest's share of income Amount

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

2.
On 1 July 2019, Silver Ltd, a reporting entity, acquired all of the issued shares of Brumby Ltd. As part of the settlement, Silver Ltd agreed to pay $1,700,000 on 1 July 2019 and $1,284,000 payable on 1 July 2020. The appropriate discount rate was 7% per annum. Silver Ltd also issued 475,000 shares of Silver Ltd to the shareholders of Brumby Ltd. At acquisition date, the fair value of the ordinary shares of Silver Ltd were $2.50 and the fair value of the ordinary shares of Brumby Ltd were $3.00. Brumby Ltd's shareholders' equity on 1 July 2019 consisted of the following: Issued capital $1,900,000 Retained earnings $650,000 Total shareholders' equity $ 2,550,000 At 1 July 2019, all of Brumby Ltd's net assets were recorded at fair value, except the following items: Carrying Amount Fair Value Machinery $1,120,000 $1,400,000 Brumby Ltd purchased the plant for $1,500,000. On 1 July 2019, the plant had an estimated remaining useful life of 7 years with zero residual value. Brumby Ltd is…
On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company's capital stock for $688,000 in cash and other assets. Nephew had a book value of $842,000 and the 20 percent noncontrolling interest fair value was $172,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $394,100. Uncle's appropriately adjusted book value as of that date was $1,247,000. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $25,000 in dividends to shareholders each year and Nephew distributes $6,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Year UncleCompany NephewCompany 2016 $ 175,000 $ 32,000 2017 202,000 40,800 2018 210,000 57,200 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? What is the net income…
On January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for $640,000 in cash and other assets. Nephew had a book value of $761,000, and the 20 percent noncontrolling interest fair value was $160,000 on that date. On January 1, 2021, Nephew had acquired 30 percent of Uncle for $351,250. Uncle's appropriately adjusted book value as of that date was $1,137,500. 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 UncleCompany NephewCompany 2019 $ 94,000 $ 38,000 2020 191,000 58,000 2021 193,000 67,400 Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's income recognized by Uncle in 2021? What is the net…
On January 2, 2019, Ulrich Co. purchased 75% of the outstanding shares of Neil Co. resulting to a goodwill of P60,000. On that date, the non-cash assets of Neil Co. whose book values did not equal their book values were accounts receivable which was overstated by P4,500 and equipment with a remaining 5 year life on the purchase date which was understated by P50,000. For the year 2020, Ulrich and Neil reported net income of P350,000 and P200,000 each respectively. Ulrich’s beginning inventory included merchandise purchased from Neil Company amounting to P39,000 which was sold to them by Neil at a 30% markup, 80% of these goods were sold during the year. Neil, on the other hand, included inventory items which they purchased from Ulrich Co. amounting to 18,000. These goods were sold by Ulrich at a 25% markup. 90% of these goods were sold by Neil for the year. Determine the consolidated net income for 2020
On July 1, 2019, Killearn Company acquired 105,000 of the outstanding shares of Shaun Company for $19 per share. This acquisition gave Killearn a 40 percent ownership of Shaun and allowed Killearn to significantly influence the investee’s decisions. As of July 1, 2019, the investee had assets with a book value of $5 million and liabilities of $1,101,500. At the time, Shaun held equipment appraised at $280,000 more than book value; it was considered to have a seven-year remaining life with no salvage value. Shaun also held a copyright with a five-year remaining life on its books that was undervalued by $650,000. Any remaining excess cost was attributable to goodwill. Depreciation and amortization are computed using the straight-line method. Killearn applies the equity method for its investment in Shaun. Shaun's policy is to declare and pay a $1 per share cash dividend every April 1 and October 1. Shaun's income, earned evenly throughout each year, was $640,000 in 2019, $670,600 in…
On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,141,000 in cash. The price paid was proportionate to Sellinger’s total fair value, although at the acquisition date, Sellinger had a total book value of $1,380,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger’s accounting records by $240,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $415,000 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger. During the two years following the acquisition, Sellinger reported the following net income and dividends: 2020 2021 Net income $340,000 $440,000 Dividends declared 150,000 180,000 Show Palka’s journal entry to record its January 1, 2021, acquisition of an additional 25…
Pearson Corporation purchased a 20% interest in Dish Company common stock on January 1, 2019 for $300,000. This investment was accounted for using the complete equity method and the correct balance in the Investment in Dish account on December 31, 2021 was $440,000. The original excess purchase transaction included $60,000 for a patent amortized at a rate of $6,000 per year. In 2022, Dish Corporation had net income of $4,000 per month earned uniformly throughout the year and paid $20,000 of dividends in May. If Pearson sold one-half of its investment in Dish on August 1, 2022 for $500,000, how much gain was recognized on this transaction? A) $190,540B) $280,950 C) $610,000D) $438,100
Renfroe, Inc. acquired 10% of Stanley Corporation on January 4, 2020, for $90,000 when the book value of Stanley was $1,000,000. During 2020, Stanley reported net income of $215,000 and paid dividends of $50,000. The book value of the 10% investment was the same as the fair value of that investment when, on January 1, 2021, Renfroe purchased an additional 30% of Stanley for $325,000. Any excess of cost over book value is attributable to goodwill with an indefinite life. During 2021, Stanley reported net income of $320,000 and paid dividends of $50,000. How much is the adjustment to the Investment in Stanley Corporation for the change from the fair-value method to the equity method on January 1, 2021? O There is no adjustment. O A debit of $165,000. O A debit of $90,000 O A debit of $16,500
On January 2, 2020, Black Company purchased 17% of Rock Company's common stock for $51,000. Rock's net income for the years ended December 31, 2020, and December 31, 2021, were $15,000 and $59,000, respectively. During 2020, Rock declared and paid a dividend of $67,500. On December 31, 2020, the fair value of the Rock stock owned by Black had increased to $69,000. How much should Black show in the 2020 income statement as income from this investment? Multiple Choice $29,475. There is no correct answer. $24,000. $11,475. $18,000. ME MacBook Air
On February 2, 2020, Groove Company purchased 15% of Pop Company's common stock for $54,00O. Pop's net income for the years ended December 31, 2020, and December 31, 2021, were $16,000 and $54,000, respectively. On July 30, 2020, Pop declared and paid a dividend of $66,500. On December 31, 2020, the fair value of the Pop stock owned by Groove had increased to $72,000. How much should Groove show in the 2020 income statement as income from this investment? Multiple Choice $18,000. $9,975. $24,000. $27,975.
On January 1, 2020, Palka, Inc., acquired 70 percent of the outstanding shares of Sellinger Company for $1,666,000 in cash. The price paid was proportionate to Sellinger's total fair value, although at the acquisition date, Sellinger had a total book value of $2,070,000. All assets acquired and liabilities assumed had fair values equal to book values except for a patent (six-year remaining life) that was undervalued on Sellinger's accounting records by $300,000. On January 1, 2021, Palka acquired an additional 25 percent common stock equity interest in Sellinger Company for $656,250 in cash. On its internal records, Palka uses the equity method to account for its shares of Sellinger. During the two years following the acquisition, Sellinger reported the following net income and dividends: 2020 2021 $ 525,000 170,000 $ 701,000 210,000 Net income Dividends declared a. Show Palka's journal entry to record its January 1, 2021, acquisition of an additional 25 percent ownership of Sellinger…