Question

Mighty Company purchased a 60 percent interest in Lowly Company on January 1, 2017, for $510,900 in cash. Lowly's book value at that date was reported as $692,500 and the fair value of the noncontrolling interest was assessed at $340,600. Any excess acquisition-date fair value over Lowly's book value is assigned to trademarks to be amortized over 20 years. Subsequently, on January 1, 2018, Lowly acquired a 20 percent interest in Mighty. The price of $344,000 was equivalent to 20 percent of Mighty's book and fair value.

Neither company has paid dividends since these acquisitions occurred. On January 1, 2018, Lowly's book value was $984,500, a figure that rises to $1,048,500 (common stock of $300,000 and retained earnings of $748,500) by year-end. Mighty's book value was $1.72 million at the beginning of 2018 and $1.82 million (common stock of $1 million and retained earnings of $820,000) at December 31, 2018. No intra-entity transactions have occurred and no additional stock has been sold. Each company applies the initial value method in accounting for the individual investments.

Prepare worksheet entries which are required to consolidate these two companies for 2018? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

1	Investment in Lowly	170,430
		Retained earnings (Mighty)		170,430
2	2	Common stock (Lowly)	300,000
		Retained earnings (Lowly)	684,500
		Investment in Lowly		590,700
		Noncontrolling interest in Lowly		393,800
3	3	Treasury stock	344,000
		Investment in Mighty		344,000
4	4	Trademarks	7,552
		Investment in Lowly		4,531
		Noncontrolling interest in Lowly		3,021
5	5	Amortization expense	398
		Trademarks		398

What is the net income attributable to the noncontrolling interest for this year?
	Net income attributable to the noncontrolling interest

Answer 1

	Account Titles	Debit	Credit
1	Investment in Lowly	170,430
	Retained earnings (Mighty)		170,430
	(To accrue income to parent during the previous years as measured by increase in book value [$292,000 x  60%] and amortization expense of $3,000 [$7950 x  60%] for the previous year.)
2	Common stock (Lowly)	300,000
	Retained earnings (Lowly) (984,500 - 300,000)	684,500
	Investment in Lowly (984,500 x 60%)		590,700
	Noncontrolling interest in Lowly (984,500 x 40%)		393,800
	(To eliminate subsidiary stockholders' equity accounts against investmen account and to recognize noncontrolling interest ownership.)
3	Treasury stock	344,000
	Investment in Mighty		344,000
	(To reclassify cost of parent shares as treasury stock.)
4	Trademarks (159000 - 7950)	151,050
	Investment in Lowly (151050 x 60%)		90,630
	Noncontrolling interest in Lowly (151050 x 40%)		60,420
	(To recognize unamortized portion of acquisition-date excess fair value.
5	Amortization expense (calculated below)	$                                7,950.00
	Trademarks		$  7,950.00
	(To record trademarks amortization expense .)
	Noncontrolling interest in subsidiary income
	($748,500 - 684500 - 7950 ) x 40%	$                              22,420.00
	Acquisition Allocation and Amortization
	Consideration transferred	$                            510,900.00
	Noncontrolling interest fair value	$                            340,600.00
	Lowlys business fair value	$                            851,500.00
	Book value acquired	$                          (692,500.00)
	Trademarks	$                            159,000.00
	Annual amortization (20-year life)	$                                7,950.00
	Lowly's Book Value on Jan 1, 2018	$                            984,500.00
	Lowly's Book Value on Jan 1, 2017	$                          (692,500.00)
	Increased in Book Value	$                            292,000.00