On January 1, 2016, Uncle Company purchased 80 percent of Nephew Company’s capital stock for $500,000 in cash and other assets. Nephew had a book value of $600,000, and the 20 percent noncontrolling interest fair value was $125,000 on that date. On January 1, 2015, Nephew had acquired 30 percent of Uncle for $280,000. Uncle’s appropriately adjusted book value as of that date was $900,000.
Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares aid pays $20,000 in dividends to shareholders each year aid Nephew distributes $5,000 annually. Any excess fair-value allocations are amortized over a 10-year period.
Year | Uncle Company |
Nephew Company |
2016 | $ 90,000 | $30,000 |
2017 | 120,000 | 40,000 |
2018 | 140,000 | 50,000 |
- a. 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?
- b. What is the net income attributable to the noncontrolling interest for 2018?
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