On January 1 2012 Uncle Company purchased 80 percent

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On January 1, 2012, Uncle Company purchased 80 percent of Nephew Company's capital stock
for $500,000 in cash and other assets. Nephew had a book value of $600,000 and the 20
percent non-controlling interest fair value was $125,000 on that date. On January 1,
2011,Nephew had acquired 30 percent of Uncle for $280,000. Uncle's appropriately adjusted
book value as of that date was $900,000.Separate operating income figures (not including
investment income) for these two companies follow. In addition, Uncle declares and pays
$20,000 in dividends to shareholders each year and Nephew distributes $5,000 annually. Any
excess fair-value allocations are amortized over a 10-year period.a. Assume that Uncle applies
the equity method to account for this investment in Nephew. What is the subsidiary's income
recognized by Uncle in 2014?b. What is the non-controlling interest's share of 2014
consolidated net income?View Solution:
On January 1 2012 Uncle Company purchased 80 percent of

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