Question

Royce Co. acquired 60% of Park Co. for $420,000 on December 31, 2014 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.

What is the non-controlling interest's share of the subsidiary's net income for the year ended December 31, 2015 and what is the ending balance of the non-controlling interest in the subsidiary at December 31, 2015?

a. $56,000 and $280,000.
b. $56,000 and $224,000.
c. $50,400 and $330,400.
d. $56,000 and $336,000.
e. $50,400 and $218,400.

Answer 1

C. $50,400 and $330,400

Step-by-step explanation:

Non- Controlling Interest is calculated as

Book Value of Park $560,000

Acquired of Park ($420,000)

Undervalued Assets ($14,000) ($140,000 / 10 years)

Net Value of Park $126,000

NCI = $126,000 * 40%

NCI = $50,400

Non- Controlling Interest in subsidiary on December 31, 2015 is $330,400

Non- Controlling Interest in the subsidiary at year end is calculated by Adding the value of undervalued assets in to Book Value of Subsidiary

($560,000 + $140,000) = $280,000

This amount is then added in The Non-Controlling Interest Calculated above

$50,400 + $280,000 = $330,400