On January 1, 20X6, Joseph Company acquired 80% of Salt Company's outstanding stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Salt Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X6 are as follows:

-Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Joseph Company's December 31,20X6,consolidated balance sheet?
A) $35,200
B) $48,200
C) $76,800
D) $112,800

Question

On January 1, 20X6, Joseph Company acquired 80% of Salt Company's outstanding stock for cash. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Salt Company's net assets at the date of acquisition. Selected balance sheet data at December 31, 20X6 are as follows:
 
-Based on the preceding information,what amount should be reported as noncontrolling interest in net assets in Joseph Company's December 31,20X6,consolidated balance sheet?
A) $35,200 
B) $48,200 
C) $76,800 
D) $112,800

Quizplus · Accepted Answer

Since Joseph Company acquired 80% of Salt Company's outstanding stock, they have a controlling interest of 80% in the company. Therefore, the remaining 20% represents the noncontrolling interest. The fair value of the noncontrolling interest was equal to a proportionate share of the book value of Salt Company's net assets at the date of acquisition. Based on the information provided, we can calculate the book value of the net assets of Salt Company as follows:

Total assets - Total liabilities = Net assets
$172,000 - $92,000 = $80,000

Since Joseph Company acquired 80% of Salt Company's outstanding stock, they would have recorded the following journal entry at the date of acquisition:

Debit Investment in Salt Company  $64,000 (=80% x $80,000)
Credit Cash  $64,000

Therefore, the carrying amount of Joseph Company's investment in Salt Company as of December 31, 20X6 would be:

Carrying amount of investment = Initial investment + Proportionate share of net income - Proportionate share of dividends
$64,000 + (0.80 x $12,000) - (0.80 x $6,000) = $68,400

The noncontrolling interest in net assets can then be calculated as:

Noncontrolling interest = Proportionate share of net assets - Fair value of noncontrolling interest
(0.20 x $80,000) - $0 = $16,000

Therefore, the amount reported as noncontrolling interest in net assets in Joseph Company's December 31, 20X6 consolidated balance sheet would be:

Noncontrolling interest in net assets = Noncontrolling interest + Noncontrolling interest's share of net income
$16,000 + (0.20 x ($12,000 - $6,000)) = $35,200

On January 1, 20X6, Joseph Company Acquired 80% of Salt