CH 9

Exercise 1:
Separate earnings and investment percentages for three affiliates for 2020 are as follows:
Separate Percentage Interest Percentage Interest
Earnings in Acres in Bain
Palace Company $450,000 80%
Acres Inc 200,000 70%
Bain Corporation 160,000 10%
Assume the investments were acquired at a cost equal to the book value of each investment,
which also equals the fair value. Separate earnings do not include investment income.

Required:
1. Calculate revised net incomes for Palace, Acres, and Bain by using the conventional method.
2. Determine the controlling interest share of consolidated net income and the non-controlling
interest shares.
Answer: Requirement 1
Equations:
P = Income of Palace on a consolidated basis
A = Income of Acres on a consolidated basis
B = Income of Bain on a consolidated basis
P = $450,000 + 0.8A; A = $200,000 + 0.7B; B = $160,000 + 0.1A
Computations:
A = $200,000 + 0.7($160,000 + 0.1A)
A = $200,000 + $112,000 + 0.07A; 0.93A = $312,000; A = $335,484
P = $450,000 + 0.8 × ($335,484); P = $450,000 + $268,387; P = $718,387
B = $160,000 + 0.1($335,484); B = $193,548; Palace = $718,387; Acres = $335,484; Bain = $193,548

Requirement 2
Controlling interest share of consolidated net income $718,387
Noncontrolling interest share (in Acres) (10% × $335,484) 33,548
Noncontrolling interest share (in Bain) (30% × $193,548) 58,064
Total consolidated net income $809,999
Check: Total separate net income ($450,000 + $200,000 + $160,000)$810,000

Exercise 2:
Padhy Corporation owns 80% of Abrams Corporation, Abrams Corporation owns 60% of Bacud
Corporation, and Bacud Corporation owns 10% of Abrams Corporation. The separate net
incomes (excluding investment income) of Padhy, Abrams, and Bacud are $300,000, $100,000,
and $80,000, respectively. Assume the investments were acquired at a cost equal to the book
value of each investment, which also equals the fair value.

Required:
Calculate the controlling interest share of consolidated net income and the noncontrolling interest
shares for Padhy Corporation and its subsidiaries. Use the conventional method for your
solution.
Answer: Requirement 1
Equations: P = $300,000 + 0.8A; A = $100,000 + 0.6B; B = $ 80,000 + 0.1A
Computations:
A = $100,000 + 0.6($80,000 + 0.1A)
A = $100,000 + $48,000 + 0.06A; 0.94A = $148,000; A = $157,447
B = $80,000 + 0.1($157,447) = $95,745; P = $300,000 + 0.8($157,447) = $425,958
Padhy $425,958; Abrams $157,447; Bacud $95,745

Requirement 2
Controlling interest share of consolidated net income $425,958
Noncontrolling interest share (for Abrams) (10% × $157,447) 15,745
Noncontrolling interest share (for Bacud) (40% × $95,745) 38,298
Total consolidated net income $480,001
Check: Total separate net income ($300,000 + $100,000 + $80,000) $480,000

Exercise 3:
On January 1, 2021, Adam Corporation purchased a 90% interest in Rodney Corporation. On
January 1, 2021, Rodney Corporation purchased an 80% interest in Ben Corporation.
In all investment acquisitions, the cost of the interest was equal to the book value of the interest
and the fair value of the interest. The following information is available for 2021:

Purchase Cost Net Income(Net Loss) for 2021

Adam $1,000,000 $200,000
Rodney $10,000 ($10,000)
Ben $15,000 $50,000
The separate net incomes do not include investment income.

Required:
1. What is controlling interest share of consolidated net income for 2021?
2. What is non-controlling interest shares of consolidated net income for 2021?
Answer:
Adam Rodney Ben
Separate incomes $200,000 $(10,000) $50,000
Allocate Ben 80% ________ 40,000 (40,000)
Subtotal $200,000 $30,000 $10,000
Allocate Rodney 90% 27,000 (27,000)
________ ________ ________
Controlling interest
share of consolidated net
income $227,000
Noncontrolling interest share $3,000 $10,000

Noncontrolling interest share in Rodney $3,000

Noncontrolling interest share in Ben 10,000
Noncontrolling interest shares $13,000