Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share.

-Based on the preceding information,the consolidating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares will include:

Question

Cinema Company acquired 70 percent of Movie Corporation's shares on December 31, 20X5, at underlying book value of $98,000. At that date, the fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation. Movie's balance sheet on January 1, 20X8, contained the following balances:
On January 1, 20X8, Movie acquired 5,000 of its own $2 par value common shares from Nonaffiliated Corporation for $6 per share.
 
-Based on the preceding information,the consolidating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares will include:

Quizplus · Accepted Answer

To prepare a consolidated balance sheet immediately following the acquisition, Cinama Company should consolidate Movie Corporation's financial statements. As Cinema Company acquired 70 percent of Movie Corporation's shares, it has the controlling interest, and its financial statements will be consolidated with the financial statements of Movie Corporation. The consolidating entry will include the following:

- Debit Investment in Movie Stock for the acquired value, which is $98,000 (underlying book value).
- Credit Noncontrolling Interest in Movie Corp. for 30 percent of Movie Corp.'s equity, which is $11,550 ($38,500 x 30%).
- Credit Retained Earnings for the excess of the implied value of the noncontrolling interest over its carrying amount, which is $19,375 ($30,750 - $11,375).
- Credit Common Stock for the par value of the shares issued ($10,000), and credit Additional Paid-In Capital for the excess of the issue price over the par value ($40,000).
- Debit Treasury Shares for the cost of the shares acquired by Movie Corporation ($10,000).

Therefore, the answer is (A) a credit to NCI in NA of Movie Corp. for $19,375.

Cinema Company Acquired 70 Percent of Movie Corporation's Shares on December