On 1/1/2019, America Corp. bought a 15% interest in Australia Corp. The acquisition price of $195,000 reflected
Question:
On 1/1/2019, America Corp. bought a 15% interest in Australia Corp. The acquisition price of $195,000 reflected an assessment that all of Australia’s accounts were fairly valued within the accounting records. During 2019, Australia reported net income of $100,000 and paid cash dividends of $30,000. America possessed the ability to influence significantly Australia’s operations, and therefore, accounted for this investment using the equity method.
On 1/1/2020, America acquired an additional 80% for $1,500,000 cash. The consideration transferred by America in its second acquisition of Australia represents the best available evidence for measuring the fair value of Australia Corp. at 1/1/2020.
Also, as of 1/1/2020, America assessed a $400,000 value to an unrecorded customer contract recently negotiated by Australia. The customer contract is anticipated to have a remaining life of 4-years. Australia’s other assets and liabilities were judged to have fair values equal to their book values. America elects to continue applying the equity method to this investment for internal reporting purposes.
Required:
- Calculate the following amounts on America pre-consolidation 2020 statement (10 points):
- Investment in Australia
- Income in Australia’s earnings
- Gain (Loss) on Revaluation of Investment in Australia to fair value
- Calculate the balance of NCI at December 31, 2020. Provide detail calculations (5 points).
- Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2020 (25 points).
Social Statistics for a Diverse Society
ISBN: 978-1483333540
7th edition
Authors: Chava Frankfort-Nachmias, Anna Leon-Guerrero