Question

On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock. Marea reported common stock on that date of $250,000 with retained earnings of $100,000. Equipment, which had a ten-year remaining life, was undervalued in Marea's financial records by $20,000. During the due diligence process, it was discovered that Marea had a patent that was not on the books, but had a market value of $50,000. The patent has a useful life of 10 years. Marea earns income and pays cash dividends as follows: What is the non-controlling interest in Mareas's second year income?

Answer 1

$140,000

Step-by-step explanation:

Given:

On January 1 of the year of acquisition, Ashley Inc. pays $300,000 for 60% of Marea Co.'s outstanding common stock

Therefore,

Marea Non controlling interest = 100% - 60% = 40%

Marea reported common stock = $250,000

Marea retained earnings = $100,000

Thus,

Net Assets of Marea Co.'s = $250,000 + $100,000

or

Net Assets of Marea Co.'s = $350,000

Thus,

Non-controlling interest in Mareas's second year income

= 40% of Net Assets of Marea Co.'s

= 0.4 × $350,000

= $140,000