### 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

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1MC

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