Ninja MCQ

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  • #201543
    vkvic2010
    Participant

    NINJA Question –

    I am studying with Becker and using Ninja MCQ as supplemental questions. One of the Ninja questions doesn’t make sense to me.

    Here’s the question:

    On January 1, Year 1, Dallas, Inc., purchased 80% of Style, Inc.’s, outstanding common stock for $120,000. On that date, the carrying amounts of Style’s assets and liabilities approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows:

    Dallas Style

    12/31/X1 12/31/X1 01/01/X1




    Investment in Style (equity method) $132,000

    Other assets $138,000 $115,000 $100,000

    Common stock 50,000 20,000 20,000

    Additional paid-in capital 80,250 44,000 44,000

    Retained earnings 139,750 51,000 36,000

    What amount of total stockholders’ equity should be reported in Dallas’ December 31, Year 1, consolidated balance sheet?

    The correct answer is $293,000 which is 50,000 + 80,250 + 139,750 + 20% of (20K+44K+36K). I don’t get this. I understand that consolidated stockholder’s equity is parent’s stockholder’s equity plus NCI of the investment.

    The original investment in sub is controlling interest and was $120,000. So original non-controlling interest was $30,000(100% of FV is $120,000/ 80%). NCI isn’t 30% of the sub’s stockholder’s equity because the acquisition price exceeded the FV and NBV of the net assets, which means Goodwill was recorded in the amount of $50,000.

    If the original NCI was $30,000, the end of year NCI should be $33,000 (30,000 + 4,000 (20% of sub’s NI) – 1,000 (20% of sub’s dividends paid). No?????

    REG 77
    AUD 94
    FAR 90

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