Question

P acquires 90% of S's voting stock. At the date of acquisition, S's net assets are carried at amounts approximating fair value, but S has previously unreported leaseholds with a fair value of $20,000,000, 5-year life. Elimination R credits the noncontrolling interest in equity in the amount of_________.

Answer 1

In consolidation accounting, for a 90% acquisition by Company P of Company S with newly reported leaseholds valued at $20,000,000, the noncontrolling interest in equity would be credited $2,000,000, representing the 10% of value not controlled by Company P.

Step-by-step explanation:

The student's question involves a consolidation accounting scenario where Company P acquires a majority of Company S's voting stock. When P acquires 90% of S's voting stock and identifies previously unreported leaseholds with a fair value of $20,000,000 that have a 5-year life, the elimination entry to consolidate the financial statements would require an adjustment. The noncontrolling interest's share of S's net assets (the remaining 10% not owned by P) needs to be calculated at fair value.

In this case, to determine the amount credited to the noncontrolling interest in equity, one would take the fair value of the previously unreported leaseholds ($20,000,000) and allocate the portion of it to the noncontrolling interest (10%).

The calculation is as follows: $20,000,000 * 10% = $2,000,000.

Therefore, the elimination entry would credit the noncontrolling interest in equity by $2,000,000.