Question

On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company's capital stock for $624,000 in cash and other assets. Nephew had a book value of $734,000 and the 20 percent noncontrolling interest fair value was $156,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $329,500. Uncle's appropriately adjusted book value as of that date was $1,065,000.

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	Uncle Company			Nephew Company
2016	$	156,000		$	33,200
2017		173,000			49,600
2018		199,000			58,600

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

Answer 1

caliculation of income recognized by uncle co
annual amortization
consideration transferred -uncle co				624000
add: non controlling interest fair value				156000
B's company fair value				780000
less: book value				734000
trade name				46000
annual amortization (46000/10)				4600
calculation of income recognize by Uncle co
Income reported by nephew co 2018				58600
less: amortization				4600
accrual base income of nephew co				54000
ownership %				80%
income recognised by U co				43200
Calculation of income attributable to non controlling interest
accrual base income of nephew co				54000
less: dividend paid (25000*30%)				7500
net income -2018				46500
outside ownership				20%
net income attributable to Non controlling int				9300