Reference no: EM133073532
Question - On January 1, 2017, Parent Inc. acquired 75% of the common shares of Sub Ltd. in exchange for a new issue of its own shares valued at $3,600,000. At that date the shareholders' equity section of Sub Ltd.'s balance sheet was as follows:
Preferred shares $ 400,000
Common shares 3,000,000
Retained earnings 1,700,000
Total shareholders' equity $5,100,000
(Any purchase discrepancy was allocated to goodwill, none of which was considered impaired in 2017.) Parent reports the non-controlling interest in Sub in its consolidated balance sheet based on the fair value of the subsidiary at acquisition, proportionate to the price paid by Parent for its controlling interest.
The preference shares were cumulative and non-participating with a dividend rate of 10% per year and were redeemable at 115. Dividends had not been paid since 2013.
During 2017, Parent Ltd. had a net income of $1,600,000 and paid dividends of $750,000 and Sub Ltd. had a net income of $500,000 and paid dividends of $250,000. The only transaction between the two companies was the sale of a parcel of land from Sub to Parent. The land was sold for $420,000 and had cost Sub $340,000 when originally purchased. The gain was taxable at the capital gains rate of 30%.
Assume Parent Ltd. does not own any of the preferred shares of Sub Ltd.
Required -
a) What is the amount of the non-controlling interest shown on the consolidated balance sheet of Parent Inc. as at December 31, 2017? For the NCI, show the calculations for the common and preferred shares separately.
b) Calculate consolidated net income for the year ended December 31, 2017. Show the net income attributable to Parent, NCI common and NCI preferred.
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