Chapter 7, Problem 15P

On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000, and the 20 percent noncontrolling interest fair value was $125,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $280,000. Uncle’s appropriately adjusted book value as of that date was $900,000.

  Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares aid pays $20,000 in dividends to shareholders each year aid Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

Year	Uncle Company	Nephew Company
2016	$ 90,000	$30,000
2017	120,000	40,000
2018	140,000	50,000

1. 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 2018?
2. b. What is the net income attributable to the noncontrolling interest for 2018?