On January 1, 2009, Uncle Company purchased 80 percent of Nephew Company€™s capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20 percent noncontrolling interest fair value was $125,000 on that date. On January 1, 2008, Nephew had acquired 30 percent of Uncle for $280,000. Uncle€™s appropriately adjusted book value as of that date was $900,000.
Operational income figures (including no investment income) for these two companies follow. In addition, Uncle pays $20,000 in dividends to shareholders each year and Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

a. Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary€™s income recognized by Uncle in 2011?
b. What is the noncontrolling interest€™s share of the subsidiary€™s 2011income?

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Uncle Company $90,000 120,000 140,000 Nephew Company $30,000 40,000 50,000 Year 2009 2010 2011