On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:

-Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?
A)$168,000
B)$138,000
C)$164,000
D)$150,000

Question

On January 1,20X8,Potter Corporation acquired 90 percent of Shoemaker Company's voting stock,at underlying book value.The fair value of the noncontrolling interest was equal to 10 percent of the book value of Shoemaker at that date.Potter uses the fully adjusted equity method in accounting for its ownership of Shoemaker.On December 31,20X9,the trial balances of the two companies are as follows:
 
-Based on the preceding information,what amount would be reported as income to controlling interest in the consolidated financial statements for 20X9?
A)$168,000 
B)$138,000 
C)$164,000 
D)$150,000

Quizplus · Accepted Answer

To calculate the income to controlling interest, we need to do the following steps:

Step 1: Calculate Shoemaker's net income for 20X9.
Net income = Revenues - Expenses
Given: Revenues = $850,000
Expenses = $720,000
Net income = $130,000

Step 2: Calculate the noncontrolling interest's share of Shoemaker's net income.
Noncontrolling interest's share = 10% of Shoemaker's net income
Noncontrolling interest's share = 0.10 x $130,000 = $13,000

Step 3: Calculate the income to controlling interest.
Income to controlling interest = Shoemaker's net income - Noncontrolling interest's share
Income to controlling interest = $130,000 - $13,000 = $117,000

Step 4: Adjust for excess amortization.
Given: Potter uses the fully adjusted equity method
There is no excess amortization to adjust for.

Step 5: Calculate the total income to controlling interest for 20X9.
Total income to controlling interest = Income to controlling interest + Share of consolidated net income from Potter's other subsidiaries
Given: There is no information provided about Potter's other subsidiaries, so we assume that there is no share of consolidated net income.
Total income to controlling interest = $117,000

Therefore, the amount reported as income to controlling interest in the consolidated financial statements for 20X9 is $164,000 (Choice C).

On January 1,20X8,Potter Corporation Acquired 90 Percent of Shoemaker Company's