Answer To: IMG_3404.jpg
Nidhi answered on Mar 26 2021
Assignment ID – 52620
Answers:
1. The balance in the investment income account at Dec, 31, 2020 is:
Partial Equity Method – $ 96,000
Equity Method – $ 96,000
2. The balance in the Non Controlling Interest account is:
December 31, 2019 – $ 156,030
December31, 2020 – $ 178,260
3. The Non Controlling Interest in Gleason Income for 2020:
December 31, 2020 - $ 1,191,040
A. Partial Equity Method
The partial equity method involves the company valuing the return from its investment in two ways. First, it includes the actual amount it has received in dividends from the other company. Secondly, it includes the gain in book value of the shares it holds in the other company, compared either with the price it paid if this is the first set of accounts since the purchase, or compared with the book value at the time of the last set of accounts.
Dividend paid by Gleason Inc. for 2020 = $ 70,000
Share of You in Gleason Inc. = 80%
Dividend Income of You from Gleason Inc. = 80% of $70,000 = $ 56,000
Net Income of Gleason Inc. for the year 2020 = $ 120,000
Share of You in Net Income of Gleason Inc. = 80% * (Net Income – Dividend Paid)
= 80% (120,000 – 70,000) = $ 40,000
Investment Income of You = $ 56,000 + $ 40,000 = $96,000
B. Equity Method
Full equity simply involves using the measures from both the simple and partial equity methods. This is designed to give a more detailed picture of both the direct and indirect gains a company makes from investments in another company. Under simple equity, the company holding the investment simply calculates the relevant percentage of the other company's profits and lists it as its own income, even if this money is not actually received.
Net Income of Gleason Inc. for the year 2020 = $ 120,000
Share of You in Gleason Inc. = 80%
Investment Income of You = 80% of $ 120,000 = $ 96,000
Qns
You acquired 80% of the outstanding voting shares of Gleason Inc, on December 31, 2018.
You paid a total of $ 560,000 in total for these shares. The 20% Non controlling interest (NCI) shares traded on a daily basis at fair value of $ 140,000 both before and after your acquisition.
On December 31, 2018, Gleason had the following asset and liability account balances:
Book Value Fair Value
Current Assets $ 12,000 12,000
Land $ 163,000 186,000 23,000
Buildings (20 year life) $ 264,000 253,000 -11,000
Equipments (10 year life) $ 248,000 302,000 54,000
Patents (5 year life) $ - 0 65,000 65,000
Notes payable (5 year life) $ -227,000 -217,000 10,000
December 31, 2020, adjusted trial balances for the two companies follow:
You Gleason
Current Assets $ 440,000 225,000
Land $ 320,000 80,000
Building $ 475,000 290,000
Equipment $ 624,000 175,000
Investment in Gleason Inc. $ Not Given - 0
Notes Payable $ -520,000 -200,000
Common Stock $ -780,000 -180,000
Retained Earnings 01/01/2020 $ -1,353,000 -340,000
Dividends Paid $ 200,000 70,000
Revenues $ -1,200,000 -320,000
Cost of goods sold $ 790,000 110,000
Depriciation expenses $ 240,000 60,000
Interest Expensees $ 89,000 30,000
Investment Income $ Not Given - 0
During 2020, Gleason sold goods costing $ 21,400 to you for $ 31,200. As of Dec. 31, 2020, you are still holding half of that in your inventory.
Required:
1 The balance in the investment income account at Dec, 31, 2020 is:
Partial Equity Method = ___________
Equity Method = __________________
2 The balance in the Non Controlling Interest acount is:
Dec 31, 2019 = ____________________
Dec 31, 2020 = ____________________
3 The Non Controlling Interest in Gleason Income for 2020 = _________
Consol2020
Consolidation Accounts as on December 31, 2020
Accounts You Gleason Inc. Consolidation Entries Non Controlling Interest Consolidated Totals
Debit Credit
(Amounts in $)
Sales -1,200,000 -320,000 4,900 - 0 - 0 -1,515,100
Cost of goods sold 790,000 110,000 - 0 4,900 - 0 895,100
Depriciation expenses 240,000 60,000 19,850 - 0 - 0 319,850
Interest Expensees 89,000 30,000 - 0 - 0 - 0 119,000
Dividend income -56,000 - 0 56,000 - 0 - 0 - 0
Seperate company net income -137,000 -120,000
Consolidated net income -181,150
NI attributable to non controlling interest (NCI) -36,230 36,230
NI attributable to You -144,920
Retained earnings 01/01/2020 -1,353,000 -340,000 340,000 64,120 - 0 -1,417,120
Net Income -137,000 -120,000 - 0 - 0 - 0 -257,000
Dividend paid 200,000 70,000 - 0 56,000 14,000 200,000
Retained earnings 31/12/2020 -1,290,000 -390,000 - 0 - 0 - 0 -1,474,120
Current Assets 440,000 225,000 - 0 - 0 - 0 665,000
Land 320,000 80,000 23,000 - 0 - 0 423,000
Building 475,000 290,000 -10,450 -550 - 0 755,100
Equipment 624,000 175,000 48,600 5,400 - 0 842,200
Patent - 0 - 0 52,000 13,000 - 0 39,000
Investment in Gleason Inc. 560,000 - 0 64,120 624,120 - 0 - 0
Goodwill - 0 - 0 319,000 - 0 - 0 319,000
Total assets 2,419,000 770,000 3,043,300
Notes Payable -520,000 -200,000 8,000 2,000 - 0 -714,000
Common stock -780,000 -180,000 - 0 - 0 - 0 -960,000
Retained earnings 31/12/2020 -1,290,000 -390,000 - 0 - 0 - 0 -1,191,040
NCI in Gleason 01/01/2020 - 0 - 0 - 0 156,030 -156,030 - 0
NCI in Gleason 31/12/2020 - 0 - 0 - 0 - 0 -178,260 -178,260
Total liabilities and Equities -2,590,000 -770,000 925,020 925,020 -3,043,300
Goodwill
Calculation of Goodwill as on Dec 31, 2018
Fair Value paid for 80% shares $ 560,000
Fair Value of NCI (20% shares) $ 140,000
Total Fair Value of Gleason Inc. $ 700,000
Total Book Value of Gleason Inc.
Current Assets $ 12,000
Land $ 163,000
Buildings (20 year life) $ 264,000
Equipments (10 year life) $ 248,000
Notes payable (5 year life) $ -227,000
460,000
Allocation of excess fair value to :
Land 23,000
Building -11,000
Equipment 54,000
Patent 65,000
Notes payable (5 year life) 10,000
Goodwill 319,000
Amortization and Carrying Value of Excess Fair Vaue of Assets
Asset Value as on 31/12/2018 Life in years Amortizaion per year Value as on 31/12/2019
(A) (B) (C) = A/B (D) = A-C
Land 23,000 - 0 - 0 23,000
Building -11,000 20 -550 -10,450
Equipment 54,000 10 5,400 48,600
Patent 65,000 5 13,000 52,000
Notes...