Solutions

Preliminary computations (in thousands)

Investment cost January 2 $600

Implied total fair value of Sal ($600 / 80%) $750

Less: Book value (500)
Excess fair value over book value $250
Excess allocated to:
Inventory $ 25
Remainder to goodwill 225
Excess fair value over book value $250

1 Income from Sal

Sals reported net income $140
Less: Excess allocated to inventory (sold in 2011) (25)
Sal adjusted income $115
Pans 80% share $ 92

2 Noncontrolling interest share

Sals adjusted income $115 x 20% noncontrolling interest $ 23

3 Noncontrolling interest December 31

Sals equity book value $520
Add: Unamortized excess (Goodwill) 225
Sals equity fair value $745
20% noncontrolling interest $149

4 Investment in Sal December 31

 Investment cost January 2 $600
Add: Income from Sal (given)* 100
Less: Dividends ($120 x 80%) (96)
Investment in Sal December 31 $604
* Based on Required

5 Consolidated net income $383.4

Noncontrolling interest share 23
Controlling interest share equals Parent NI under equity method $360.4

Solutions
1 $700,000 ($300,000 + $440,000 - $40,000 intercompany)
Preliminary computations for 2 and 3
Investment cost on January 1, 2011 $28,000
Implied total fair value of Sar ($28,000 / 70%) $40,000
Book value of Sar 30,000
Excess allocated entirely to Goodwill $10,000

2 Pims separate income for 2013 $24,000

Loss from investment in Sar ($1,000 x 70%) (700)
Controlling share of consolidated net income $23,300
Noncontrolling share (300)
Consolidated net income $23,000

3 Investment cost January 1, 2011 $28,000

Add: Share of income less dividends 2011 2013* 280
Investment balance December 31, 2013 $28,280
*($1,400 income - $1,000 dividends) 70%
Solutions
Preliminary computations
Investment cost $580,000

Implied total fair value of Sin ($580,000 / 80%) $725,000

Book value 600,000
Total excess fair value over book value $125,000

Excess allocated to:

Equipment (5-year life) $ 50,000
Patents (10-year amortization period) 75,000
Total excess fair value over book value $125,000

Income from Sin 2011 2012

Sins reported net income $120,000 $150,000
Less: Depreciation of excess allocated to equipment (10,000) (10,000)
Amortization of patents (7,500) (7,500)
Sins adjusted income $102,500 $132,500
Income from Sin (80%) $ 82,000 $106,000

1 Consolidated net income for 2011

income under equity method $340,000
Add: Noncontrolling interest share 20,500
Consolidated net income $360,500

2 Investment in Sin December 31, 2011

Cost January 1 $580,000
Add: Income from Sin 2011 82,000
Less: Dividends from Sin 2011 ($80,000 x 80%) (64,000)
Investment in Sin December 31 $598,000
3 Noncontrolling interest share 2011
($102,500 adjusted income x 20%) $ 20,500

4 Noncontrolling interest December 31, 2012

Sins equity book value at acquisition date $600,000
Add: Income less dividends for 2011 and 2012* 100,000
Sins equity book value at December 31, 2012 700,000
Unamortized excess at December 31, 2012 90,000
Sins equity fair value at December 31, 2012 $790,000
Noncontrolling interest percentage 20%
Noncontrolling interest December 31, 2012 $158,000
*2011 Net Income $120,000
2011 Dividends (80,000)
2012 Net Income 150,000
2012 Dividends (90,000)
Total $100,000

Solutions
2011 2012 2013
Pan's separate income $ 900,000 $1,200,000 $1,050,000
Add: 80% of She's reported income 1,200,000 1,320,000 1,140,000
Add: Realization of profits in beginning inventory 90,000 120,000
Less: Unrealized profits in ending Inventory (90,000) (120,000) (60,000)
Controlling share of consolidated NI $2,010,000 $2,490,000 $2,250,000

Noncontrolling interest share

1,500,000 x 20% 300,000
1,650,000 x 20% 330,000
1,425,000 x 20% 285,000
Consolidated net income $2,310,000 $2,820,000 $2,535,000
Solutions
1 Noncontrolling interest share
Sev's reported net income $ 50,000 $ 140
Add: Intercompany profit from upstream sales in beginning inventory 5,000
Less: Intercompany profit from upstream sales in ending inventory (10,000)
Sevs adjusted and realized income $ 45,000
Noncontrolling interest share (40%) $ 18,000

2 Consolidated sales
Combined sales $1,250,000
Less: Intercompany sales (100,000)
Consolidated sales $1,150,000

3 Consolidated cost of sales

Combined cost of sales $ 650,000
Less: Intercompany sales (100,000)
Intercompany profit in beginning inventory (5,000)
Add: Intercompany profit in ending inventory 10,000
Consolidated cost of sales $ 555,000

4 Total Consolidated Income

Combined income $ 300,000
Less: Intercompany profit in ending inventory (10,000)
Add: Intercompany profit in beginning inventory 5,000
Total Consolidated Income $ 295,000
Solutions
Pap Corporation and Subsidiary
Consolidated Income Statement
December 31, 2013
(in thousands)

Sales ($2,000 + $1,000 - $180 intercompany) $ 2,820

Cost of sales ($800 + $500 - $180 intercompany - $20 unrealized profit
in beginning inventory + $30 unrealized profit in ending inventory (1,130)
Gross profit $ 1,690
Depreciation expense (340)
Other expenses ($180 + $120) (300)
Total consolidated income 1,050
Less : Noncontrolling interest share ($300 + $20 profit in beginning
inventory - $30 profit in end. inventory) x 20% (58)
Controlling interest share of consolidated net income $ 992

Supporting computations
Cost of investment in Sak at January 1, 2012 $ 1,200
Implied fair value of Sak ($1,200 / 80%) $ 1,500
Book value of Sak (1,400)
Goodwill $ 100