The trial balance of Garner Company at January 1, 2015 is as follows, along with
ID: 2430410 • Letter: T
Question
The trial balance of Garner Company at January 1, 2015 is as follows, along with estimated fair values of its assets and liabilities: Book Value Dr (Cr) Fair Value Dr (Cr) Current assets $ 200,000 $ 300,000 Plant & equipment, net 28,000,000 35,000,000 Investment in HTM securities 1,000,000 3,000,000 Client contracts 0 5,000,000 Liabilities (15,000,000) (15,200,000) Capital stock (14,000,000) -- Retained earnings (200,000) -- Total $ 0 Information on the revalued assets and liabilities is as follows: Revaluation Remaining Life as of January 1, 2015 Current assets (inventory) FIFO Plant & equipment 20 years, straight-line Investment in securities Sold in 2018 Client contracts 5 years, straight-line Liabilities 3 years, straight-line Goodwill No impairment Brown Corporation paid $80,000,000 in cash to acquire 90% of the voting stock of Garner Company on January 1, 2015. Goodwill generated from the acquisition equaled $58,900,000. The noncontrolling interest was valued at $7,000,000 at the date of acquisition. It is now December 31, 2018, four years after the acquisition. Garner reported net income of $4,000,000 in 2018 and declared no dividends. Garner’s January 1, 2018 retained earnings balance is $6,200,000. Brown uses the complete equity method to account for the investment in Garner on its own books
Required a) Calculate 2018 equity in net income
b) Calculate 2018 noncontrolling interest in net income.
Explanation / Answer
Fair value of 90% voting stock $80,000,000 Fair value of 10% voting stock $7,000,000 Total fair value $87,000,000 Less: Common Stock $14,000,000 Retained earnings $200,000 Excess fair value over cost $72,800,000 Excess allocated to: Plant $7,000,000 Inventory $100,000 Investment $2,000,000 Client contracts $5,000,000 Liabilities $200,000 Goodwill $58,900,000 Depreciation on Plant per year (7000000/20) $350,000 Amortization of Client contracts(5000000/5) $1,000,000 Garners reported net profit in 2018 $4,000,000 Less: Depreciation of plant $350,000 Amortization of client contract $1,000,000 Net income after adjustment $2,650,000 Equity in net income (90%) $2,385,000 Non controlling interest in net income $265,000
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