Summit owns a 90 percent majority voting interest in Treeline. In turn, Treeline

Question

Summit owns a 90 percent majority voting interest in Treeline. In turn, Treeline owns a 70% majority voting interest in Basecamp. In the current year, each firm reports the following income and dividends. Separate Company income figures do not include any investment or dividend income.

In addition, in computing its income on a full accural basis, Treeline's acquisition of Basecamp necessitates excess acquisition-date fair value over book value amortization of $25,000 per year. Similarly, Summit's acquisition of Treeline requires $20,000 of excess fair-value amortizations.

Required:

Difference between these elements:

(1) Summit's net income.

(2) Total entity net income for the three compaies less noncontrolling interest in the total entity's net income.

Separate Company Income Dividends Declared Summit $345,000 $150,000 Treeline 280,000 100,000 Basecamp 175,000 40,000

Explanation / Answer

Dividend declared not paid:

   Dividend paybale and receivable will be eliminated by passing a consolidation entry

Amortisation:

   It wil reduce the Value of Investment in Associates:

Treeline can report it's Consolidate statement an equity income of 122,500 (175,000*70%)

The total income of Treeline will be 402,500 (280,000+122,500)

Summit can report an equty earning of 362,250 (402,500 * 90%)

The Total Net Income of Summit : 707,250

Total entity net income for the three companies less non controlling interest:

Entity's Net Income (345,000 + 252,000+ 122,500)                  719,500

Non Controlling Interest (280,000 *10 % + 175,000 * 30%)            80,500

Difference between Two (719,500 - 707,250)      12,250

i,e. Treeline will get 70 % profit from Basecamp ie            122,500

out of that only 90 % will transfered to Summit           110,250

The difference will be in Treeline's Equity earnings account:    12,250 ie Minority share of Investment income from Base camp

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