Play Company acquired 70 percent of Screen 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 Screen Corporation.Screen's balance sheet on January 1,20X8,contained the following balances:
On January 1,20X8,Screen 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

Play Company acquired 70 percent of Screen 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 Screen Corporation.Screen's balance sheet on January 1,20X8,contained the following balances:
  On January 1,20X8,Screen 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

Since Play Company acquired 70 percent of Screen Corporation's shares, it means that 30 percent of the shares are owned by noncontrolling interest. Thus, the credit to Noncontrolling Interest in Net Assets of Screen Corp. will be equal to 30 percent of the net assets of Screen Corporation on January 1, 20X8, which is calculated as follows:

Total net assets of Screen Corporation = $272,000 ($240,000 + $14,000 + $18,000)

Noncontrolling interest in net assets of Screen Corp. = 30% x $272,000 = $81,600

Therefore, the consolidating entry should include a credit to Noncontrolling Interest in Net Assets of Screen Corp. for $19,375, which is the difference between the fair value of the noncontrolling interest (30% of the book value of Screen Corporation) at the time of acquisition ($29,250) and the noncontrolling interest in net assets of Screen Corp. on January 1, 20X8 ($81,600 - $62,225). There is no need for a credit to Additional Paid-In Capital or a debit to Treasury Shares, and a credit to Investment in Screen stock for $6,125 is incorrect as it only reflects the cost of the 5,000 shares that Screen Corporation acquired from Nonaffiliated Corporation.

Play Company Acquired 70 Percent of Screen Corporation's Shares on December