Problem 1: When Pill Ltd. acquired 85% of Sill Corporation on January 1, Year 1,
ID: 2571929 • Letter: P
Question
Problem 1: When Pill Ltd. acquired 85% of Sill Corporation on January 1, Year 1, for $238,000, the imputed acquisition differential of $60,000 was allocated entirely to goodwill. On December 31, Year 1, a goodwill impairment loss of $1,500 was recognized. Pill uses the cost method for internal purposes to account for its investment. Pill reported a separate-entity Year 1 net income of $25,000 and declared no dividends. Sill reported a separate-entity net income of $40,000 and paid dividends of $9,000 in Year 1. Required: Compute the following: (a) Consolidated net income attributable to Pill's shareholders for Year 1. (b) Consolidated net income attributable to non-controlling interest that would appear on the Year 1 consolidated income statement. (c) Investment in Sill at December 31, Year 1 (equity method).
Explanation / Answer
(a)
Net income Pill – Year 1 (cost method) 25,000
Less: Dividends from Sill (85%´9,000) 7,650
17,350
Net income of Sill – Year 40,000
Less: Goodwill impairment loss 1,500
38,500
85%
32,725
Consolidated net income attributable to Pill’s shareholders – Year 1 50,075
(b)
Consolidated net income attributable to non-controlling interests – Year 1
[15%´(40,000 – 1,500)] 5,775
(c)
Investment in Sill – Dec. 31, Year 1 (cost method) 238,000
Income from Sill 32,725
270,725
Less: Dividends from Sill 7,650
Investment in Sill – Dec. 31, Year 1 - equity method 263,075