On January 1,20X7,Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock.There was no differential related to this transaction.The noncontrolling interest had a fair value equal to 20 percent of book value.The book value of Siena on December 31,20X7 was as follows:
On January 1,20X8,Pisa purchased an additional 12,500 shares directly from Siena for $25 per share.
-Based on the preceding information,the elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:

Question

On January 1,20X7,Pisa Company acquired 80 percent of Siena Company by purchasing 40,000 shares of Siena's common stock.There was no differential related to this transaction.The noncontrolling interest had a fair value equal to 20 percent of book value.The book value of Siena on December 31,20X7 was as follows:
  On January 1,20X8,Pisa purchased an additional 12,500 shares directly from Siena for $25 per share.
-Based on the preceding information,the elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:

Quizplus · Accepted Answer

The elimination entry for the consolidation needs to remove the noncontrolling interest in Siena's equity that is held by Pisa. Since Pisa acquired 80% of Siena's common stock, it means that Pisa owns 100% - 80% = 20% of Siena's equity. The fair value of this 20% noncontrolling interest is given to be equal to the book value, so the elimination entry will include a credit to Investment in Siena Co. for the amount of the noncontrolling interest ($744,000). There is no information given to support the other answer choices.

On January 1,20X7,Pisa Company Acquired 80 Percent of Siena Company