On January 1, 2019, Monica Company acquired 70 percent of YoungCompany’s outstanding common stock for $700,000. The fair value ofthe noncontrolling interest at the acquisition date was$300,000.
Young reported stockholders’ equity accounts on that date asfollows:
| | | |
| Common stock—$10 par value | $ | 100,000 | |
| Additional paid-in capital | | 100,000 | |
| Retained earnings | | 520,000 | |
|
In establishing the acquisition value, Monica appraised Young'sassets and ascertained that the accounting records undervalued abuilding (with a five-year remaining life) by $40,000. Anyremaining excess acquisition-date fair value was allocated to afranchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 30percent gross profit rate. Monica consistently resold thismerchandise in the year of acquisition or in the period immediatelyfollowing. Transfers for the three years after this businesscombination was created amounted to the following:
| Year | Transfer Price | Inventory Remaining
at Year-End
(at transfer price) |
| 2019 | $ | 60,000 | | $ | 21,000 | |
| 2020 | | 80,000 | | | 23,000 | |
| 2021 | | 90,000 | | | 29,000 | |
|
In addition, Monica sold Young several pieces of fullydepreciated equipment on January 1, 2020, for $47,000. Theequipment had originally cost Monica $72,000. Young plans todepreciate these assets over a five-year period.
In 2021, Young earns a net income of $250,000 and declares andpays $80,000 in cash dividends. These figures increase thesubsidiary's Retained Earnings to a $850,000 balance at the end of2021. During this same year, Monica reported dividend income of$56,000 and an investment account containing the initial valuebalance of $700,000. No changes in Young's common stock accountshave occurred since Monica's acquisition.
Prepare the 2021 consolidation worksheet entries for Monica andYoung.
Compute the net income attributable to the noncontrollinginterest for 2021
.
