Reference no: EM132928209

Question - Elimination of intercompany profits for variable interest entities (VIEs) and voting interest entities

Assume that on January 1, 2019, a Reporting Company acquires a 35 percent interest in a Legal Entity for $245,000 cash. The fair value of the 65 percent interest not acquired by the Reporting Company is $455,000. The fair value and book value of the identifiable net assets of the Legal entity equals $700,000. The Reporting Company has a right to 35 percent of the reported income (loss) of the Legal Entity. The Legal Entity is determined to be a VIE, and the Reporting Company is determined to be primary beneficiary. For the year ended December 31, 2019, the Reporting Company and the VIE reported the following pre-consolidation income statements assuming that the Reporting Company applies the equity method:

Show how the Equity method income (loss) from VIE is computed.

Use a negative sign with answer only to indicate equity method loss from VIE.

Compute the amount of consolidated net income.

Compute the amount of consolidated net income attributable to the noncontrolling interest.

Compute the amount of consolidated net income attributable to the controlling interest.

How would your answers to items (b) through (d) change if the Legal Entity is a "voting interest entity?"