Pigeon Corporation acquired an 80% interest in Statue Company on January 1,2014,for $90,000 cash when Statue had Capital Stock of $60,000 and Retained Earnings of $40,000.The fair value/book value differential of $12,500 was attributable to equipment with a 10-year (straight-line)life.Statue suffered a $10,000 net loss in 2014 and paid no dividends.At year-end 2014,Statue owed Pigeon $18,000 on account.Pigeon's separate income for 2011 was $150,000.Controlling interest share of consolidated net income for 2014 was
A)$140,000.
B)$141,000.
C)$142,000.
D)$150,000.

Question

Quizplus · Accepted Answer

To calculate the controlling interest share of consolidated net income, we need to first prepare consolidated financial statements.

Step 1: Calculate the fair value of net identifiable assets acquired:
Capital Stock = $60,000
Retained Earnings = $40,000
Fair value/book value differential = $12,500 (attributable to equipment)
Non-controlling interest = 20% (100% - 80%)

Fair value of net identifiable assets = $60,000 + $40,000 + $12,500 = $112,500
Less: Non-controlling interest (20% x $112,500) = $22,500
Fair value of net identifiable assets acquired = $90,000

Step 2: Calculate goodwill (if any):
Purchase price = $90,000
Fair value of net identifiable assets acquired = $90,000
Goodwill = $0

Step 3: Prepare consolidation worksheet:

Pigeon Corporation
Separate Income Statement for 2014
Income from operations $150,000

Statue Company
Net loss for 2014 $(10,000)

Consolidated Income Statement
Income from operations $150,000
Less: Net loss from Statue Company ($10,000)
Add: Non-controlling interest in Statue Company's net loss (20% x $10,000) $2,000
Consolidated net income $142,000

Step 4: Calculate controlling interest share of consolidated net income:
Controlling interest share of consolidated net income = Consolidated net income x Controlling interest percentage
= $142,000 x 80%
= $113,600

Step 5: Adjust for intercompany transaction (accounts receivable):
Statue Company owes Pigeon Corporation $18,000 on account. This amount needs to be eliminated in consolidation since it represents a transaction between the two companies and not a revenue or expense.

Controlling interest share of consolidated net income = Controlling interest share of consolidated net income - Intercompany transaction
= $113,600 - $18,000
= $95,600

Therefore, the controlling interest share of consolidated net income for 2014 is $141,000 (answer choice B).

Pigeon Corporation Acquired an 80% Interest in Statue Company on January