Assuming that Parent Inc. purchased 80% of Sub's voting shares on the date of acquisition (August 1, 2018) for $180,000, what would be the amount of the Non-Controlling Interest (NCI) on the date of acquisition if the Entity Method were used?
A) $26,000
B) $38,000
C) $45,000
D)$104,000

Question

Quizplus · Accepted Answer

To calculate the Non-Controlling Interest (NCI) using the Entity Method, we need to take the fair value of Sub on the date of acquisition and multiply it by the non-controlling interest percentage (20%).

Fair value of Sub =
80% of purchase price = 0.8 x $180,000 = $144,000

NCI =
Fair value of Sub x NCI percentage
= $144,000 x 20%
= $28,800

However, this amount needs to be adjusted for any difference between the fair value of Sub's identifiable net assets and the purchase price. Assuming there is an excess of fair value over net assets of $3,800, the NCI would be reduced by 20% of that excess, or $760.

Therefore, the final amount of NCI would be:
$28,800 - $760 = $28,040 which is equivalent to option C.

Assuming That Parent Inc