Exam 6: Appendix A: Preferred and Restricted Shares of Investee Corporation

Correct Answer:

Verified

$$\begin{array} { | l | r | r | } \hline \text { Purchase price for } 70 \% \text { common shares } & \$ 54,900,000 & \\\hline \text { Value of } 100 \% \text { common based on price for } 70 \% & & \$ 72,000,000 \\\hline \text { Carrying value of net identifiable assets } & \$ 81,000,000 & \\\hline \text { Less redemption value of preferred shares } & ( 13,000,000 )& \\\hline \text { Carrying value of common shares } & 68,000,000 & \\\hline \text { Fair value increment for trademark } & 500,000 & \\\hline &&68,500,000\\\hline \text { Fair value increment attributable to goodwill } & &\$3,500,000 \\\hline\end{array}$$ Non-controlling interest on common shares at acquisition date 30% × $72,000,000 = $21,600,000
Non-controlling interest, December 31, 20X9
$$\begin{array} { | l | r | r | } \hline \text { Non controlling interest in common shares: } & & \\\hline \text { At date of acquisition } & &\$21,600,000 \\\hline \text { Add net increase to retained earnings for Near for 20X9 } & & \\( 1,700,000 - 800,000 ) & 900,000& \\\hline \text { Unamortized fair value adjustment-trademark } &500,000 & \\\hline \text { Amortization of fair value adjustment to date } & ( 50,000 )& \\\hline \text { Adjusted earnings } &1,350,000 \\\hline\end{array}$$ $$\begin{array} { | l | l | r | } \hline \text { NCI's portion of adjusted earnings } 30 \% \times 1,350,000 & \quad\quad& 405,000 \\\hline \text { Balance December } 31,20X9 & & 22,005,000 \\\hline\end{array}$$