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?

  • CreatedOctober 04, 2014
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