Question

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2019 when Park's book value was $560,000. The Royce stock was not actively traded. On the date of acquisition, Park had equipment (with a ten-year life) that was undervalued in the financial records by $140,000.

One year later, the following selected figures were reported by the two companies.Additionally, no dividends have been paid.
Rovce Co. Park Co.
Book Value Book Value Fair Value
Current assets 868,000 420,000 448,000
Equipment 364,000 280,000 400,000
Buildings 574,000 210,000 210,000
Liabilities (546,000) (168,000) (168,000)
Revenues (1,260,000) (560,000)
Expenses 700,000 420,000
Investment income Not Given
1. What is consolidated net income for 2011 atributable to Royce's controlling interest?
2. What is the noncontrolling interest's share of the subsidiary's net income for the year ended December 31 2011 and what is the ending balance of the noncontrolling interest in the subsidiary at December 31, 2011?

Answer 1

The consolidated net income attributable to Royce's controlling interest is $644,000, including their share of Park's net income. The noncontrolling interest's share of Park's net income is $56,000, making the ending balance of the noncontrolling interest $280,000 at year-end 2011.

Step-by-step explanation:

To calculate the consolidated net income attributable to Royce's controlling interest, we first need to determine the subsidiary's net income. We have Park Co.'s book value of revenues and expenses. The net income of Park Co. is revenue minus expenses, which is $560,000 - $420,000 = $140,000.

No investment income is given for Royce Co., implying that the equity method is not applied, so we will consolidate the subsidiary net income directly. Royce's consolidated net income includes 60% of Park's net income, which is 0.6 * $140,000 = $84,000. Royce's own net income can be calculated by taking its revenues minus its expenses, which is $1,260,000 - $700,000 = $560,000. Therefore, the consolidated net income attributable to Royce's controlling interest is Royce's net income plus its share of Park's net income: $560,000 + $84,000 = $644,000.

For the noncontrolling interest's share of the subsidiary's net income, we take the remaining 40% of Park's net income: 0.4 * $140,000 = $56,000 for the year ended December 31, 2011.

The ending balance of the noncontrolling interest in the subsidiary is the noncontrolling interest's share of Park's net income added to the initial noncontrolling interest at the acquisition date. The initial noncontrolling interest is 40% of Park's book value at acquisition, which is $560,000 * 0.4 = $224,000. Adding the net income share for the year gives us an ending balance of $224,000 + $56,000 = $280,000 at December 31, 2011.

Answer 2

1. Parent Income = Revenue - Expenses

Parent Income = $1260000 - $700000

Parent Income = $560000

Sub-Income = Revenue - Expenses

Sub-Income = 560000 - 420000

Sub-Income = 140000 * 60% ownership

Sub-Income = $84000

Excess Amortization = (140000 / 10) * (60%)

Excess Amortization = $8400

Consolidated Net Income = $560,000 + $84,000 - $8,400

Consolidated Net Income = $635,600

2. Sub-Income = Revenue - Expenses

Sub-Income = 560000 - 420000

Sub-Income = 140000 * 40% ownership

Sub-Income = $56000

Excess Amortization = (140000 / 10) * (40%)

Excess Amortization = $5600

Non Controlling Interest share = 56000 - 5600

Non Controlling Interest share = $50400

Non Controlling Interest at acquisition date = 700000 * 40%

Non Controlling Interest at acquisition date = $280000

Non Controlling Interest during 2015 = $56000

Excess Amortization = $5600

Balance of Interest = $280,000 + $56,000 - $5,600

Balance of Interest = $330,400