On January 1, 2009, Monica Company acquired 70 percent of Young Companys outstanding common stock for $665,000.

On January 1, 2009, Monica Company acquired 70 percent of Young Company’s outstanding common stock for $665,000. The fair value of the noncontrolling interest at the acquisition date was $285,000.

Young reported stockholders’ equity accounts on that date as follows:

Common stock—$10 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000

Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000

In establishing the acquisition value, Monica appraised Young’s assets and ascertained that the accounting records undervalued a building (with a five-year life) by $50,000. Any remaining excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.

During the subsequent years, Young sold Monica inventory at a 30 percent gross profit rate. Monica consistently resold this merchandise in the year of acquisition or in the period immediately following. Transfers for the three years after this business combination was created amounted to the following:

In addition, Monica sold Young several pieces of fully depreciated equipment on January 1, 2010, for $36,000. The equipment had originally cost Monica $50,000. Young plans to depreciate these assets over a six-year period.
In 2011, Young earns a net income of $160,000 and distributes $50,000 in cash dividends. These figures increase the subsidiary’s Retained Earnings to a $740,000 balance at the end of 2011. During this same year, Monica reported dividend income of $35,000 and an investment account containing the initial value balance of $665,000.
Prepare the 2011 consolidation worksheet entries for Monica and Young. In addition, compute the noncontrolling interest’s share of the subsidiary’s net income for2011.

Transcribed Image Text:

Year Transfer Price 2009 2010 2011 Inventory Remaining at Year-End (at transfer price) 10,000 12,000 18,000 560,000 80,000 90,000