Asked by Grace Parker on Jun 14, 2024
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The Collins Company paid $1,050,000 to purchase 70% of Revsine Company's outstanding common stock on July 1,2015.Revsine's balance sheet on the acquisition date reported net assets totaling $1,200,000.Revsine's land had a fair value which was $175,000 greater than book value,while the inventory's fair value exceeded its book value by $67,500.Immediately after the acquisition of the Revsine stock,Collins reported net assets of $5,785,000.
Required:
1.Determine the consolidated net assets total as of July 1,2015 using the acquisition method of accounting.
2.Determine the amount of noncontrolling interest to be reported on the July 1,2015 balance sheet.How is the noncontrolling interest reported within the consolidated balance sheet? Assume that the acquisition method of accounting is applicable.
Noncontrolling Interest
Noncontrolling interest, also known as minority interest, represents the portion of a subsidiary company’s equity that is not owned by the parent company.
Acquisition Method
An accounting technique used in consolidating the financial statements of a group of companies when one acquires control over the other.
Consolidated Net Assets
The total assets minus total liabilities of a company and its subsidiaries, reported as a single figure in consolidated financial statements.
- Gain insight into the core concepts of acquisition accounting and the compilation of consolidated financial statements.
- Understand the calculation and reporting of noncontrolling interests in consolidated financial statements.
- Recognize and measure goodwill in corporate amalgamations.
Verified Answer
AM
Alyssa Marie LopezJun 20, 2024
Final Answer : ![*The implied value of Revsine is $1,500,000 ($1,050,000/.70).The implied value exceeds the $1,200,000 book value by $300,000.The $300,000 differential is partially explained by the land differential of $175,000 and the inventory differential of $75,000;therefore Goodwill must be $57,500 ($300,000 - $175,000 - $67,500). 2.The noncontrolling interest of $450,000 [($1,050,000/.70).30] is reported as a component of stockholders' equity on the consolidated balance sheet.](https://d2lvgg3v3hfg70.cloudfront.net/TB2405/11ea6da2_c80e_6f67_9009_b935c0103f33_TB2405_00.jpg)
*The implied value of Revsine is $1,500,000 ($1,050,000/.70).The implied value exceeds the $1,200,000 book value by $300,000.The $300,000 differential is partially explained by the land differential of $175,000 and the inventory differential of $75,000;therefore Goodwill must be $57,500 ($300,000 - $175,000 - $67,500).
2.The noncontrolling interest of $450,000 [($1,050,000/.70).30] is reported as a component of stockholders' equity on the consolidated balance sheet.
*The implied value of Revsine is $1,500,000 ($1,050,000/.70).The implied value exceeds the $1,200,000 book value by $300,000.The $300,000 differential is partially explained by the land differential of $175,000 and the inventory differential of $75,000;therefore Goodwill must be $57,500 ($300,000 - $175,000 - $67,500).
2.The noncontrolling interest of $450,000 [($1,050,000/.70).30] is reported as a component of stockholders' equity on the consolidated balance sheet.
Learning Objectives
- Gain insight into the core concepts of acquisition accounting and the compilation of consolidated financial statements.
- Understand the calculation and reporting of noncontrolling interests in consolidated financial statements.
- Recognize and measure goodwill in corporate amalgamations.