On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company's capital stock for $512,000 in cash and other assets. Nephew had a book value of $626,000 and the 20 percent noncontrolling interest fair value was $128,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $283,000. Uncle's appropriately adjusted book value as of that date was $910,000.   Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $30,000 in dividends to shareholders each year and Nephew distributes $4,000 annually. Any excess fair-value allocations are amortized over a 10-year period.     Year Uncle Company Nephew Company 2016 $ 138,000   $ 34,000   2017   203,000     51,800   2018   236,000     52,600       Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's income recognized by Uncle in 2018? What is the net income attributable to the noncontrolling interest for 2018?

Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 25E
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On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company's capital stock for $512,000 in cash and other assets. Nephew had a book value of $626,000 and the 20 percent noncontrolling interest fair value was $128,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $283,000. Uncle's appropriately adjusted book value as of that date was $910,000.

 

Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $30,000 in dividends to shareholders each year and Nephew distributes $4,000 annually. Any excess fair-value allocations are amortized over a 10-year period.

 

 

Year Uncle
Company
Nephew
Company
2016 $ 138,000   $ 34,000  
2017   203,000     51,800  
2018   236,000     52,600  
 

 

  1. Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's income recognized by Uncle in 2018?

  2. What is the net income attributable to the noncontrolling interest for 2018?

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