On January 1, Year 5, Wellington Inc. owned 90% of the outstanding common shares of Sussex Corp. Wellington accounts for its investment using the equity method. The balance in the investment account on January 1, Year 5, amounted to $235,800. The unamortized acquisition differential on this date was allocated entirely to vacant land held by Sussex.
The shareholders’ equity of Sussex on January 1, Year 5, was as follows:
The shareholders’ equity of Sussex on January 1, Year 5, was as follows:
Common shares (7,200 shares outstanding).... $ 28,000
Retained earnings............. 134,000
.................... $162,000
The following events occurred in Year 5:
• The net income of Sussex for Year 5 amounted to $36,000, earned equally throughout the year.
• On April 1, Year 5, Sussex issued 1,800 shares at a price of $25 per share. Wellington did not acquire any of these shares.
• On June 30, Year 5, Sussex paid dividends amounting to $12,000.
• On September 15, Year 5, Sussex sold 30% of its vacant land at its carrying amount.
• On December 31, Year 5, Wellington sold 648 shares of its investment in Sussex for $22,000.
Required:
Calculate the following as at December 31, Year 5:
(a) The acquisition differential allocated to vacant land and the split in value between the parent and the non-controlling interest.
(b) The balance in the investment account, assuming that Wellington is a private company, uses ASPE, and chooses to use the equity method to report its investment in Sussex.
(c) The amount of non-controlling interest on the consolidated balance sheet.
On January 1, Year 8, Panet Company acquired 40,000 common shares of Saffer Corporation, a public company, for $500,000. This purchase represented 8% of the outstanding shares of Saffer. It was the intention of Panet to acquire more shares in the future in order to eventually gain control of Saffer.