Paris, Inc. owns 80 percent of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Stance holds 10 percent of the voting stock of Paris. The payment for that investment was in excess of book value and fair value by $15,000. Any excess fair value is assigned to trademarks to be amortized over a 10-year period. During the current year, Paris reported operating income of $200,000 and dividend income from Stance of $20,000. At the same time, Stance reported operating income of $40,000 and dividend income from Paris of $5,000.
-What will be reported as the noncontrolling interest in Stance's net income?

Question

Quizplus · Accepted Answer

To calculate the noncontrolling interest in the net income of Stance, we need to first determine the net income of Stance. 
Stance's net income = Operating income + Dividend income from Paris - Dividend paid to Paris

Stance's net income = $40,000 + $5,000 - ($20,000 * 0.2) 
Stance's net income = $31,000

Now, we need to calculate the noncontrolling interest in the net income of Stance:

Noncontrolling interest in Stance = (Stance's net income - Excess fair value amortization) * Noncontrolling interest percentage

Noncontrolling interest in Stance = ($31,000 - ($75,000/10)) * 0.2 
Noncontrolling interest in Stance = $7,500

Therefore, the noncontrolling interest in Stance's net income is $7,500, which is option D.