On January 2, 2016, Porous, Inc. acquired an 80% interest in Simtex Corporation for $2,250,000. Simtex reported total stockholders' equity of $2,500,000 on this date. An examination of Simtex's books revealed that book value was equal to fair value for all assets and liabilities except for inventory, which was undervalued by $150,000. All of the undervalued inventory was sold during 2016.
Porous also purchased 30% of the $1,250,000 par value outstanding bonds of Simtex Corporation for $350,000 on January 2, 2016. The bonds mature in 10 years, carry an 11% annual interest rate payable on June 30 and December 31, and had a carrying value of $1,270,000 on the date of purchase. Both companies use the straight-line method to amortize bond discounts and premiums.
Porous reported net income of $750,000 for 2016 and paid dividends of $325,000 during 2016. Simtex Corporation reported net income of $800,000 for 2016 and paid dividends of $225,000 during the year.
Required:
Compute the following items at December 31, 2016.
1. Carrying value of the debt.
2. Interest revenue reported by Porous, Inc.
3. Interest expense reported by Simtex Corporation.
4. Balance in the Investment in Simtex Bonds account.
5. Controlling interest in consolidated net income for 2016 using the t-account approach.
6. Noncontrolling interest in consolidated income for 2016.

Question

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The Answer of On January 2, 2016, Porous, Inc. acquired an 80% interest in Simtex Corporation for $2,250,000. Simtex reported total stockholders' equity of $2,500,000 on this date. An examination of Simtex's books revealed that book value was equal to fair value for all assets and liabilities except for inventory, which was undervalued by $150,000. All of the undervalued inventory was sold during 2016.
Porous also purchased 30% of the $1,250,000 par value outstanding bonds of Simtex Corporation for $350,000 on January 2, 2016. The bonds mature in 10 years, carry an 11% annual interest rate payable on June 30 and December 31, and had a carrying value of $1,270,000 on the date of purchase. Both companies use the straight-line method to amortize bond discounts and premiums.
Porous reported net income of $750,000 for 2016 and paid dividends of $325,000 during 2016. Simtex Corporation reported net income of $800,000 for 2016 and paid dividends of $225,000 during the year.
Required:
Compute the following items at December 31, 2016.
1. Carrying value of the debt.
2. Interest revenue reported by Porous, Inc.
3. Interest expense reported by Simtex Corporation.
4. Balance in the Investment in Simtex Bonds account.
5. Controlling interest in consolidated net income for 2016 using the t-account approach.
6. Noncontrolling interest in consolidated income for 2016.