Question

On January 1, 2018, Ritt Corporation acquired 80 percent of Shaw Corporation’s $10 par common stock for $956,000. On this date, the fair value of the noncontrolling interest was $239,000, and the carrying amount of Shaw’s net assets was $1,000,000. The fair values of Shaw’s identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net) with a remaining life of 20 years, which were $100,000 in excess of the carrying amount. For the year ended December 31, 2018, Shaw had net income of $190,000 and paid cash dividends totaling $125,000. In the December 31, 2018, consolidated balance sheet, the amount of noncontrolling interest reported should be ______.

Answer 1

$247,000

Step-by-step explanation:

Since uncontrolled interest = 20%

Value of uncontrolled interest reported at year end = 20%

Carrying value already = $239,000

Add: Share in profits net of dividend as dividend will reduce the value, treated separately

= Share in profit = $190,000 - $125,000 = $65,000 X 20% = $13,000

Thus carrying value = $239,000 +$13,000 = $252,000

Note asset adjustment is also to be added of plant = $100,000 X 20% = $20,000

Thus net carrying value = $252,000 + $20,000 = $272,000

Less: Dividends as reduces the cost of investment as per equity method = $125,000 X 20% = $25,000

$272,000 - $25,000 = $247,000