Phone Corporation owns 75 percent of Smart Company’s common stock, acquired at underlying book value on January 1, 20X4. At the acquisition date, the book values and fair values of Smart’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 25 percent of the total book value of Smart. The income statements for Phone and Smart for 20X4 include the following amounts:

Phone uses the cost method in accounting for its ownership of Smart. Smart paid dividends of $12,000 in 20X4.

Required

a. What amount would Phone report in its income statement as income from its investment in Smart if Phone used equity-method accounting?

b. What amount of income should be assigned to noncontrolling interest in the consolidated income statement for 20X4?

c. What amount should Phone report as consolidated net income for 20X4?

d. Why should Phone not report consolidated net income of $79,000 ($59,000 + $20,000) for 20X4?

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Sales Dividend Income Total Income Less: Cost of Goods Sold Depreciation Expense Other Expenses Total Expenses Net Income Phone Corporation $528,000 9,000 $537,000 $380,000 32,000 66,000 $478,000 $ 59,000 Smart Company $150,000 $150,000 $ 87,000 20,000 23,000 $130,000 $ 20,000