Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel Corporation at underlying book value on January 1,20X9.At that date,the fair value of the noncontrolling interest in Shovel's common stock was equal to 20 percent of the book value of its common stock.Shovel's balance sheet at the time of acquisition contained the following balances:
The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1,20X9.All of the $5 par value preferred shares are callable at $6 per share.During 20X9,Shovel reported net income of $100,000 and paid no dividends.
-Based on the information provided,what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1,20X9?

Question

Pail Corporation acquired 80 percent of the common shares and 70 percent of the preferred shares of Shovel Corporation at underlying book value on January 1,20X9.At that date,the fair value of the noncontrolling interest in Shovel's common stock was equal to 20 percent of the book value of its common stock.Shovel's balance sheet at the time of acquisition contained the following balances:
  The preferred shares are cumulative and have a 10 percent annual dividend rate and are four years in arrears on January 1,20X9.All of the $5 par value preferred shares are callable at $6 per share.During 20X9,Shovel reported net income of $100,000 and paid no dividends.
-Based on the information provided,what amount will be reported as the noncontrolling interest in the consolidated balance sheet on January 1,20X9?

Quizplus · Accepted Answer

The noncontrolling interest in the common stock of Shovel Corporation can be calculated as follows:

Book value of common stock = $500,000 
Fair value of noncontrolling interest in common stock = 20% × $100,000 = $20,000

Noncontrolling interest in common stock = 30% × $500,000 = $150,000 
Noncontrolling interest in preferred stock = 30% × $120,000 = $36,000

Therefore, the total noncontrolling interest is equal to $186,000 ($150,000 + $36,000). This amount should be reported on the consolidated balance sheet on January 1, 20X9. Therefore, option C is the correct answer.

Pail Corporation Acquired 80 Percent of the Common Shares and 70