a.
Introduction: A business uses the equity method as an accounting approach to report the earnings made by its investment in some other business. The investor firm declares the revenue generated by another company on its financial statements using the equity methodology in a prorated portion to the equity stake it has in the other organization.
The net income of the subsidiary income recognized by the parent company.
b)
Introduction: A business uses the equity method as an accounting approach to report the earnings made by its investment in some other business. The investor firm declares the revenue generated by another company on its financial statements using the equity methodology in a prorated portion to the equity stake it has in the other organization.
The net income attributable to the non-controlling interest for the year 2021.
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- Denber Co. acquired 60% of the common stock of Kailey Corp. on September 30, 2019. For 2019, Kailey reported revenues of $820,000 and expenses of $610,000, (excluding amortization related to the acquisition) all reflected evenly throughout the year, The annual amount of amortization related to this acquisition was $15,000. What is the effect of including Kailey in consolidated net income for 2019? A. 31,250 B. 33,000 C. 48,750 D. 39,350arrow_forwardOn December 31, 2019, Purple Company purchased 80% of the common stock of Sage Company for $1,300,000. On this date, Sage had total owners' equity of $650,000 (common stock $100,000; other paid-in capital, $250,000; and retained earnings, $300,000). Any excess of cost over book value is due to the under or overvaluation of certain assets and liabilities. Assets and liabilities with differences in book and fair values are provided in the following table: Book Fair Value Value Current assets $500,000 $700,000 Accounts receivable 200,000 150,000 Inventory 800,000 850,000 Land 100,000 450,000 Buildings and equipment, net 700,000 800,000 Current liabilities 800,000 850,000 Bonds payable 850,000 900,000 Remaining excess, if any, is due to goodwill. Required: Prepare the entry for Purple’s investment in Sage. Prepare a value analysis schedule. Prepare a schedule for determination and distribution of…arrow_forwardOn January 1, 2019, Uncle Company purchased 80 percent of Nephew Company's capital stock for $584,000 in cash and other assets. Nephew had a book value of $700,000, and the 20 percent noncontrolling interest fair value was $146,000 on that date. On January 1, 2021, Nephew had acquired 30 percent of Uncle for $354,250. Uncle's appropriately adjusted book value as of that date was $1,147,500. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $25,000 in dividends to shareholders each year and Nephew distributes $6,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Year UncleCompany Nephew Company 2019 $ 164,000 $ 35,200 2020 186,000 56,000 2021 216,000 64,400 Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's…arrow_forward
- On January 1, 2019, Field Company acquired 40% of North Company by purchasing 8,000 shares for $144,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $50,000 and paid dividends of $0.80 per share. Field depreciates its depreciable assets over a 12-year remaining life. Required: 1. Prepare all the journal entries of Field to record the preceding information for 2019. 2. Next Level What is the conceptual justification for the use of the equity method?arrow_forwardOn January 1, 2019, Field Company acquired 40% of North Company by purchasing 10,000 shares for $180,000 and obtained significant influence. On the date of acquisition, Field calculated that its share of the excess of the fair value over the book value of North’s depreciable assets was $15,000 and that the purchased goodwill was $12,000. At the end of 2019, North reported net income of $45,000 and paid dividends of $0.60 per share. Field depreciates its depreciable assets over a 12-year remaining life. Required: 1. Prepare all the journal entries of Field to record the preceding information for 2019. 2. Next Level What is the conceptual justification for the use of the equity method? {Chart of Accounts} {General Journal} The conceptual justification for the use of the equity method is: a. It recognizes that fair value is not an appropriate valuation method for the investment because the investor could influence the amount of income it recognizes. b. It recognizes…arrow_forwardGrouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on December 31, 2019. The purchase price was $904,000 for 45,200 shares, and is equal to 10% of Gregson’s carrying amount. Gregson declared and paid a $0.80 per share cash dividend on June 15 and again on December 15, 2020. Gregson reported net income of $516,000 for 2020. The fair value of Gregson’s shares was $24 per share at December 31, 2020. Grouper is a public company and applies IFRS. Prepare the journal entries for Grouper for 2019 and 2020, assuming that Grouper cannot exercise significant influence over Gregson. The investment is accounted for using the FV-OCI model. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date…arrow_forward
- Grouper Inc. acquired 10% of the outstanding common shares of Gregson Inc. on December 31, 2019. The purchase price was $904,000 for 45,200 shares, and is equal to 10% of Gregson’s carrying amount. Gregson declared and paid a $0.80 per share cash dividend on June 15 and again on December 15, 2020. Gregson reported net income of $516,000 for 2020. The fair value of Gregson’s shares was $24 per share at December 31, 2020. Grouper is a public company and applies IFRS. What amount is reported for the investment in Gregson shares on the December 31, 2020 statement of financial position under each of these methods in Fair Value Method and Equity Method? Fair ValueMethod Equity Method Investment $enter a dollar amount $enter a dollar amount Where is the investment reported on statement of financial position? The Investment accounts under both Fair Value Method and Equity Method are likely to be included in current assets / non-current assets /…arrow_forwardOn January 1, 2022, Uncle Company purchased 80 percent of Nephew Company's capital stock for $616,000 in cash and other assets. Nephew had a book value of $739,000, and the 20 percent noncontrolling interest fair value was $154,000 on that date. On January 1, 2024, Nephew had acquired 30 percent of Uncle for $313,000. Uncle's appropriately adjusted book value as of that date was $1,010,000. Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $15,000 in dividends to shareholders each year and Nephew distributes $2,000 annually. Any excess fair-value allocations are amortized over a 10-year period. Year Uncle Company Nephew Company 2022 $ 116,000 $ 47,600 2023 167,000 49,400 2024 187,000 59,200 Required: Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiary's income recognized by Uncle in 2024? What is the net income attributable to…arrow_forwardOn July 1, 2019, Joltik Company purchased 80% of the outstanding shares of Galvantula Company at a cost of P4,000,000. On that date, Galvantula had P2,500,000 of capital stock and P3,500,000 of retained earnings. For 2019, Joltik had income of P1,400,000 from its separate operations and paid dividends of P750,000. For 2019, Galvantula reported income of P325,000 and paid dividends of P150,000. All the assets and liabilities of Galvantula have book values equal to their respective fair market values. Assume income was earned evenly throughout the year except for the intercompany transaction on October 1. On October 1, 2019, Joltik purchased a machinery from Galvantula for P500,000. The book value of the machinery on that date was P600,000. The loss of P100,000 is reflected in the income of Galvantula indicated above. The machinery is expected to have a useful life of 5 years from the date of sale. In the December 31, 2019 consolidated balance sheet, how much is the consolidated net…arrow_forward
- Green Co. sold inventories on May 1, 2019 to its 75% owned subsidiary, Indigo Company. The inventories costing P188,000 were sold for a 25% gross profit Out of these inventories, sold to outsiders during 2019. In 2020, Green Co. reported net income of P430,000s and Indigo Co. reported net income of P280,000 How much of the consolidated net income is to be allocated to non- controlling interest in 2020? a.76, 267 b.74, 700 c.81,750 d. 70,000arrow_forwardAdams Corporation acquired 90 percent of the outstanding voting shares of Barstow, Inc., on December 31, 2019. Adams paid a total of $603,000 in cash for these shares. The 10 percent noncontrolling interest shares traded on a daily basis at fair value of $67,000 both before and after Adams's acquisition. On December 31, 2019, Barstow had the following account balances: Current assets Land Buildings (10-year remaining life) Equipment (5-year remaining life) Patents (10-year remaining life) Notes payable (due in years) Common stock Retained earnings, 12/31/19 Debits Current assets Land Buildings. Equipment Investment in Barstow, Inc. Cost of goods sold Depreciation expense December 31, 2021, adjusted trial balances for the two companies follow: Adams Corporation Interest expense Dividends declared Total debits Credits Notes payable Common stock Retained earnings, 1/1/21 Revenues Investment income Total credits Book Value $ 160,000 120,000 220,000 160,000 $ 0 (200,000) (180,000) (280,000)…arrow_forwardOn January 1, 2020, Jumper Co. acquired all of the common stock of Cable Corp. for $540,000. Annual amortization associated with the acquisition amounted to $1,800. During 2020, Cable recognized net income of $54,000 and paid dividends of $24,000. Cable's net income and dividends for 2021 were $86,000 and $24,000, respectively. Required: Assuming that Jumper decided to use the partial equity method, prepare a schedule to show the balance in the investment account at the end of 2021.arrow_forward
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