Phone Corporation owns 80 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 20 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 $ 538,000 $ 167,000 Dividend Income 8,000 Total Income $ 546,000 $ 167,000 Less: Cost of Goods Sold $ 378,000 $ 87,000 Depreciation Expense 27,000 15,000 Other Expenses 65,000 18,000 Total Expenses $ 470,000 $ 120,000 Net Income $ 76,000 $ 47,000 Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $10,000 in 20X4. Required: What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting? What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4? What amount should Phone report as consolidated net income for 20X4?
Phone Corporation owns 80 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 20 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 $ 538,000 $ 167,000 Dividend Income 8,000 Total Income $ 546,000 $ 167,000 Less: Cost of Goods Sold $ 378,000 $ 87,000 Depreciation Expense 27,000 15,000 Other Expenses 65,000 18,000 Total Expenses $ 470,000 $ 120,000 Net Income $ 76,000 $ 47,000 Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $10,000 in 20X4. Required: What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting? What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4? What amount should Phone report as consolidated net income for 20X4?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Phone Corporation owns 80 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 20 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 | $ 538,000 | $ 167,000 |
| Dividend Income | 8,000 | |
| Total Income | $ 546,000 | $ 167,000 |
| Less: | ||
| Cost of Goods Sold | $ 378,000 | $ 87,000 |
| 27,000 | 15,000 | |
| Other Expenses | 65,000 | 18,000 |
| Total Expenses | $ 470,000 | $ 120,000 |
| Net Income | $ 76,000 | $ 47,000 |
Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $10,000 in 20X4.
Required:
-
What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting?
-
What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4?
-
What amount should Phone report as consolidated net income for 20X4?
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