Question

On April 1, Pujols, Inc., exchanges $430,000 for 70 percent of the outstanding stock of Ramirez Corporation. The remaining 30 percent of the outstanding shares continued to trade at a collective fair value of $165,000. Ramirez’s identifiable assets and liabilities each had book values that equaled their fair values on April 1 for a net total of $500,000. During the remainder of the year, Ramirez generates revenues of $600,000 and expenses of $360,000 and declared no dividends. On a December 31 consolidated balance sheet, what amount should be reported as noncontrolling interest?

Answer 1

The amount reported as noncontrolling interest on the consolidated balance sheet is the initial fair value of the non-owned shares ($165,000) plus the noncontrolling interest's share of the net income for the year ($72,000), totaling $237,000.

Step-by-step explanation:

To calculate the amount to be reported as noncontrolling interest on the consolidated balance sheet, we need to consider both the fair value of the 30 percent of Ramirez Corporation's shares not owned by Pujols, Inc. and the share of Ramirez's net income attributable to the noncontrolling interest. Since the fair value of the remaining shares is $165,000, this represents the initial noncontrolling interest on the acquisition date. Throughout the year, Ramirez Corporation generates net income, which is revenues ($600,000) minus expenses ($360,000), totaling $240,000. The noncontrolling interest's share of this net income is 30 percent, which is $72,000 (30% of $240,000). Therefore, the noncontrolling interest on the December 31, consolidated balance sheet amounts to the initial value plus the share of the net income, equaling $165,000 + $72,000 = $237,000.