On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:
Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.
-Based on the preceding information,what will be the amount of net income reported by Frazer Corporation in 20X9?
A) $44,000
B) $55,000
C) $66,000
D) $36,000

Question

On January 3, 20X9, Redding Company acquired 80 percent of Frazer Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Frazer's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Frazer. The stockholders' equity accounts of the two companies at the acquisition date are:
  Noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9.
-Based on the preceding information,what will be the amount of net income reported by Frazer Corporation in 20X9?
A) $44,000 
B) $55,000 
C) $66,000 
D) $36,000

Quizplus · Accepted Answer

Since Redding acquired 80% of Frazer's common stock, it implies that Frazer Corporation is now a subsidiary of Redding Company. Therefore, Redding Company will consolidate Frazer Corporation's financial statements with its own.

To get the consolidated net income, we need to combine the net income of both companies. Since Frazer Corporation is now a subsidiary of Redding, we only consider the proportion of Frazer's net income that is attributable to the noncontrolling interest, which is 20%.

We are given that the noncontrolling interest was assigned income of $11,000 in Redding's consolidated income statement for 20X9. This means that Frazer's net income attributable to the noncontrolling interest was $11,000 ÷ 20% = $55,000.

Since noncontrolling interest only gets a share of the profit, and not losses, we can conclude that the amount of net income reported by Frazer Corporation in 20X9 is also $55,000. Therefore, the answer is B.

On January 3, 20X9, Redding Company Acquired 80 Percent of Frazer