I got everything right expect the valuation. I valued Sage at $1M = $200,000/.20 (.20 is arrived at from 5K new stock out of 25K shares). Wouldn't that be the value of the company, opposed to the carrying value of Sage??
Thyme, Inc. owns 16,000 of Sage Co.'s 20,000 outstanding common shares. The carrying value of Sage Co's equity is $500,000. Sage subsequently issues an additional 5,000 previously unissued shares for $200,000 to an outside party that is unrelated to either Thyme or Sage. What is the total non-controlling interest after the additional shares are issued?
The correct answer is (C).
Non-controlling Interest = 9,000 / 25,000 = 36%
Total equity of Sage = $700,000 (500,000 + 200,000).
Value of Non-Controlling Interest = Non-Controlling Interest x Total equity of Sage = $700,000 x 36% = $252,000.
Note: Non-controlling interest is the portion of the subsidiary’s equity held by minority shareholders who do not have control over the company. Thyme owns 16,000 of the 20,000 outstanding shares. The remaining 4,000 shareholders form the minority. Out of the new issue, all the 5,000 shares are issued to an outside party unrelated to Thyme or Sage. They also form the minority. In Sage Co. total 9,000 shareholders (i.e. 4,000 shareholders of previously outstanding shares plus the 5,000 new shareholders) constitute the non-controlling interest in the company.