On January 1, 2018, Johnsonville Enterprises, Inc. acquired 80 percent of Stayer
ID: 2565691 • Letter: O
Question
On January 1, 2018, Johnsonville Enterprises, Inc. acquired 80 percent of Stayer Company’s outstanding common shares in exchange for $3,000,000 cash. The price paid for the 80 percent ownership interest was proportionately representative of the fair value of all of Stayer’s shares.
At acquisition date, Stayer’s books showed assets of $4,200,000 and liabilities of $1,600,000. The recorded assets and liabilities had fair values equal to their individual book values except that a building (10-year remaining life) with book value of $195,000 had an appraised fair value of $345,000. Stayer’s books showed a $175,500 carrying amount for this building at the end of 2018.
Also, at acquisition date Stayer possessed unrecorded technology processes (zero book value) with an estimated fair value of $1,000,000 and a 20-year remaining life. For 2018 Johnsonville reported net income of $650,000 (before recognition of Stayer’s income), and Stayer separately reported earnings of $350,000. During 2018, Johnsonville declared dividends of $85,000 and Stayer declared $50,000 in dividends.
Compute the amounts that Johnsonville Enterprises should report in its December 31, 2018, consolidated financial statements for the following items:
(a) Stayer's building (net of accumulated depreciation).
(b) Stayer's technology processes (net of accumulated amortization).
(c) Net income attributable to the noncontrolling interest
(d) Net income attributable to controlling interest
(e) Noncontrolling interest in Stayer
Explanation / Answer
PART A Stayer’s technology processes:
Acquisition-date fair value (20 yearremaining life) 1,000,000
2018 amortization (50,000)
Technologyprocesses12/31/18 950,000
PART B Stayer’s building:
Acquisition-datefair value (10 yearremaining life) 345,000
2018 depreciation (34,500)
Building 12/31/18 310,500
PART C Net income attributable to the controlling interest:
Johnsonville’s separate net income 650,000
Stayer’sreported net income 350,000
Excess fair value amortization:
Technology processes (50,000)
Building($345,000 $195,000) ÷10years (15,000)
Stayer’s adjustednet income 285,000
Johnsonville’sownershippercentage 80% 228000
Controlling interest in consolidated net income 878000
PART D Net income attributable to noncontrolling interest:
Stayer’s reported net income 350,000
Excess fair value amortization:
Technology processes (50,000)
Building($345,000 $195,000) ÷10years (15,000)
Stayer’s adjusted net income 285,000
Noncontrolling interest percentage 20%
Noncontrolling interest in consolidated net income 57000
PART E Noncontrolling interest:
Acquisition-date balance 1/1/18
Total Stayer fair value ($3,000,000 ÷80%) 3,750,000
Noncontrolling interest percentage 20%
Noncontrolling interest acquisition-datefair value 750,000
Noncontrolling interest in consolidated net income 57000
Noncontrolling interest share of Stayer dividends (20% × $50,000) (10,000)
Noncontrolling interest 12/31/18 797,000