Exam 3: An Introduction to Consolidated Financial Statements

Correct Answer:

Verified

Investment in Starr on Patterson's ledger:
December 31,2014 = $2,250,000 + Starr Net Income ($150,000 × 90%)$135,000 - Dividends received ($30,000 × 90%)$27,000 - Excess fair-value amortization ($20,000 × 90%)$18,000 = $2,340,000
December 31,2015 = $2,340,000 + Starr Net Income ($180,000 × 90%)$162,000 - Dividends received ($30,000 × 90%)$27,000 - Excess fair-value amortization ($20,000 × 90%)$18,000 = $2,457,000
Investment in Starr shown on consolidated statements:
Will be -0- at the end of all years in consolidation,as the investment account is eliminated in consolidation.
Consolidated net income:
2014: $550,000 + 150,000 - excess fv amortization $20,000 = $680,000
2015: $575,000 + 180,000 - excess fv amortization $20,000 = $735,000
Noncontrolling interest balance on Patterson's ledger:
Will be -0- at the end of all years on Patterson's ledger,because the noncontrolling owners only have interest in the subsidiary balances and therefore have no interest to be shown on the parent's stand-alone statements.
Noncontrolling interest balance to be shown on the consolidated financial statements:
December 31,2014: Acquisition date fair value $2,500,000 × 10% = 250,000 + interest in 2014 net income ($150,000 × 10%)15,000 - fv amortization ($20,000 × 10%)$2,000 - dividends($30,000 × 10%)= $260,000
December 31,2015: $260,000 + interest in 2015 net income ($180,000 × 10%)18,000 - fv amortization ($20,000 × 10%)$2,000 - dividends($30,000 × 10%)= $273,000