noncontrolling interest

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  • #1587806
    jessanqi
    Participant

    Hi, I’m confused with this question, according to wiley textbook, the non controlling interest is likewise not included in consolidated dividends declared because, from the parent company’s point of view, subsidiary dividends do not represent dividends of the consolidated entity.

    Please advise!! thank you!!!!

    Jane Co. owns 90% of the common stock of Dun Corp. and 100% of the common stock of Beech Corp. On December 30, Dun and Beech each declared a cash dividend of $100,000 for the current year. What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech?

    A. $10,000
    B. $100,000
    C. $190,000
    D. $200,000

    Explanation
    The correct answer is A. When preparing consolidated financial statement of a parent and its subsidiaries, eliminate all intercompany transactions. Since Jane owns 100% of the common stock of Beech, eliminate 100% of the dividends paid by Beech to Jane. Therefore, no dividends were paid to outsiders.

    Since Jane owns 90% of Dunn. When Dunn paid $100,000 of dividends to its shareholders, 90% of those dividends paid by Dunn to Jane would have to be eliminated. The remaining 10% of the dividends paid by Dunn to outsiders is not eliminated, so 10% of the $100,000, which equals $10,000, should be the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech.

Viewing 6 replies - 1 through 6 (of 6 total)
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  • #1653269
    jessanqi
    Participant

    can soneone please help?

    #1653275
    Anonymous
    Inactive

    I struggled with this before and I'm glad you posted this question for review. The explanation actually explains it very well. Intercompany transactions are eliminated in the consolidation process.

    The best way to get the consolidation/non-controlling interest questions down is to practice a few of them. You have to know the entries and the effect of the different types of transactions on the various accounts.

    If it helps, I can reword the explanation so it may be more easily understood:

    Each subsidiary (Dun and Beech) pays it's shareholders $100,000 of dividends for the year. Jane owns 90% of Dun and 100% of Beech.

    Since intercompany transactions are eliminated in the consolidated financial statements, 90% of the Dun dividends are eliminated and 100% of Beech dividends are eliminated.

    The transactions are eliminated because the dividends paid on the subsidiary's books cancels out with the dividend income on the parent's books when consolidated. However on the subsidiary's own financial statements (not the consolidated statements) it would still show the dividends and they would not be eliminated on the individual subsidiary statements.

    The remaining 10% of the Dun dividends not paid to Jane would be considered the non-controlling interest. When financial statements are consolidated, the entity has to report the amount of equity that is not attributable to their ownership. In regards to dividends, this would be the remaining 10% of the $100,000 Dun dividends paid to shareholders, which is $10,000 paid to shareholders other than Jane.

    #1653287
    Lentilcounter
    Participant

    Good explanation. CARINBIG is an memorization tool that Becker uses.

    Common stock – eliminate the par value of the common stock of the subsidiary at the date of the acquisition
    Additional paid-in capital – eliminate the additional paid-in capital of the subsidiary at the date of acquisition
    Retained earnings – eliminate the retained earnings of the subsidiary at the date of acquisition
    Investment – eliminate the parent company’s investment in the subsidiary
    Noncontrolling interest = fair value of any portion of the subsidiary that is not acquired by the parent must be reported as noncontrolling interest in the equity section of the consolidated financial statements separately from the parent’s equity
    Balance sheet adjusted to FV = increase or decrease book value of the subsidiary’s plant and equipment equal to its FV
    Identifiable intangible assets recorded at fair value = parent must record the fair value of all identifiable intangible assets of the subsidiary
    Goodwill = record if there is an excess of FV of the subsidiary (ACQ. Cost+NCI) over the FV of the subsidiary’s net assets, any deficiency in the ACQ. cost vs. subsidiary’s FV is recorded as a gain

    BEC = 79

    AUD = 79

    FAR = 84

    REG = 86

    Prayer + AICPA blueprints = my success

    BEC = 72 (6/08/16)
    FAR = ?
    REG = ?
    AUD = ?

    #1653838
    jessanqi
    Participant

    @BrickellCPA Thank you so much for the help!!

    The below question is similar to the one you just advised. This below one is aksing the dividend declared and paid on consolidated of RE, but this one didn't included the noncontrolling interest. Can I think this way, if the question is asking the dividend paid on the consolidated RE, then just related to the partent. If it's aksing the dividends reported on the consolidated FS, then should includ the noncontrolling interes. Please advise!! thank you!

    On January 2, of the current year, Peace Co. paid $310,000 to purchase 75% of the voting shares of Surge Co. Peace reported retained earnings of $80,000, and Surge reported contributed capital of $300,000 and retained earnings of $100,000. The purchase differential was attributed to depreciable assets with a remaining useful life of 10 years. Peace used the equity method in accounting for its investment in Surge. Surge reported net income of $20,000 and paid dividends of $8,000 during the current year. Peace reported income, exclusive of its income from Surge, of $30,000 and paid dividends of $15,000 during the current year. What amount will Peace report as dividends declared and paid in its current year's consolidated statement of retained earnings?

    A. $8,000
    B. $15,000
    C. $21,000
    D. $23,000
    Explanation

    The correct answer is B. The consolidated statement of retained earnings is the parent’s statement of retained earnings because the stockholder’s equity of the subsidiary is eliminated during the consolidation process. If the consolidated statement of retained earnings is the parent’s, then the beginning retained earnings of the parent, plus the net income of the parent, minus dividends paid by the parent equal the ending retained earnings of the parent, which is the consolidated retained earnings.

    Since the consolidated statement of retained earnings is the parent’s (Peace) and the dividends paid is a component of the statement of retained earnings, then the consolidated dividends paid is whatever Peace (parent) paid during the period, which amounts to $15,000.

    #1653862
    Lentilcounter
    Participant

    1) What is the total amount of dividends that should be reported in the December 31 consolidated financial statements of Jane and its subsidiaries, Dun and Beech? –> The key is to think about what is included in the consolidated financial statements in answering the question. The consolidated financial statements includes the NCI of any subs. Dividends paid to external parties outside of the parent are not intercompany transactions and therefore included in NCI.

    2.) What amount will Peace report as dividends declared and paid in its current year's consolidated statement of retained earnings?
    This question is asking about what is included in the consolidated statement of retained earnings. Per the CARINBIG formula I posted above, the retained earnings of the subsidiary are eliminated in consolidation. Therefore, you know that anything that affects the subsidiary's RE is also eliminated. This is why the answer is just the parent's dividends for the 2nd question.

    BEC = 79

    AUD = 79

    FAR = 84

    REG = 86

    Prayer + AICPA blueprints = my success

    BEC = 72 (6/08/16)
    FAR = ?
    REG = ?
    AUD = ?

    #1654456
    jessanqi
    Participant

    Thanks @Lentilcounter!!

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