Use the following information to answer Questions
Parker Company owns 90% of the outstanding common stock of Stagger Company.On January 1, 2014, Stagger Company issued $500,000, 12%, ten-year bonds.
On January 1, 2013, Parker Company paid $315,000 for Stagger Company bonds with a par value of $300,000 and a carrying value of $297,600.Both companies use the straight-line method to amortize bond premiums and discounts.Parker Company accounts for the investment using the cost method of accounting.
-Compute the noncontrolling interest in the 2013 consolidated income assuming that Parker Company reported a net income of $240,000 (includes dividend income from Stagger Company).Stagger Company reported net income of $150,000 and declared and paid cash dividends of $90,000.

Question

Use the following information to answer Questions 
Parker Company owns 90% of the outstanding common stock of Stagger Company.On January 1, 2014, Stagger Company issued $500,000, 12%, ten-year bonds.
On January 1, 2013, Parker Company paid $315,000 for Stagger Company bonds with a par value of $300,000 and a carrying value of $297,600.Both companies use the straight-line method to amortize bond premiums and discounts.Parker Company accounts for the investment using the cost method of accounting.
-Compute the noncontrolling interest in the 2013 consolidated income assuming that Parker Company reported a net income of $240,000 (includes dividend income from Stagger Company).Stagger Company reported net income of $150,000 and declared and paid cash dividends of $90,000.

Quizplus · Accepted Answer

To find the noncontrolling interest in the 2013 consolidated income, we need to find the portion of Stagger Company's net income that belongs to the noncontrolling interest.

First, we need to find the portion of Stagger Company's net income that belongs to Parker Company (since Parker owns 90% of Stagger). 
Stagger's net income: $150,000 
Stagger's dividends declared: ($90,000) 
Stagger's retained earnings: $60,000

Parker's share of Stagger's net income: 90% x $60,000 = $54,000

Next, we need to subtract the dividends received from Stagger Company's net income to get the portion that belongs to the noncontrolling interest. 
Parker's net income (including dividends from Stagger): $240,000 
Parker's share of Stagger's net income: ($54,000) 
Parker's net income from other sources: $186,000

Noncontrolling interest's share of Stagger's net income: $150,000 - $90,000 - $54,000 = $6,000

Finally, we need to adjust for the bond investment made by Parker in Stagger. Since Parker accounts for the investment using the cost method, we only need to adjust for the difference between the carrying value and the par value. 
Bond carrying value: $297,600 
Bond par value: $300,000 
Bond premium: $2,400

Noncontrolling interest's share of bond premium: 10% x $2,400 = $240

Noncontrolling interest in the 2013 consolidated income: $6,000 + $240 = $6,240 
However, the question asks for the noncontrolling interest in the 2013 consolidated income, which includes Parker's income from other sources. This means we need to subtract Parker's income from other sources from the consolidated net income: 
Consolidated net income: $240,000 
Parker's income from other sources: ($186,000) 
Consolidated income attributable to noncontrolling interest: $54,000 - $240 = $14,760

Therefore, the answer is B) $14,790.

Use the Following Information to Answer Questions