Cinema Company acquired 70 percent of Movie Corporation's shares on December 31,2005,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 1,2008,contained the following balances:
On January 1,2008,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 eliminating 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 31,2005,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 1,2008,contained the following balances:
On January 1,2008,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 eliminating entry needed in preparing a consolidated balance sheet immediately following the acquisition of shares will include:

Quizplus · Accepted Answer

The eliminating entry would include a credit to Noncontrolling Interest for their portion of Movie Corporation's net assets and to eliminate the investment account in Movie Corporation. The fair value of the noncontrolling interest was equal to 30 percent of the book value of Movie Corporation, which is $29,400 ($98,000 x 30%). Therefore, the entry would be:

Debit Investment in Movie stock: $98,000 
Credit Noncontrolling Interest: $29,400 
Credit Retained Earnings: $68,600

The subsequent acquisition of Movie Corporation's own shares has no effect on the elimination entry.

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