Question

Smith, Inc., has the following stockholders’ equity accounts as of January 1, 2011:
Preferred stock—$100 par, nonvoting and
nonparticipating, 8 percent cumulative dividend . . . . . . . . . . . . . . $ 2,000,000
Common stock—$20 par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000

Haried Company purchases all of Smith’s common stock on January 1, 2011, for $14,040,000. The preferred stock remains in the hands of outside parties. Any excess acquisition-date fair value will be assigned to franchise contracts with a 40-year life.
During 2011, Smith reports earning $450,000 in net income and pays $360,000 in cash dividends.
Haried applies the equity method to this investment.
a. What is the noncontrolling interest’s share of consolidated net income for this period?
b. What is the balance in the Investment in Smith account as of December 31, 2011?
c. What consolidation entries are needed for 2011?



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  • CreatedOctober 04, 2014
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