Broom Manufacturing used cash to purchase 75 percent of the voting stock of Satellite Industries on January

Question:

Broom Manufacturing used cash to purchase 75 percent of the voting stock of Satellite Industries on January 1, 20X3, at underlying book value. Broom accounts for its investment in Satellite using the basic equity method.

Broom Manufacturing had no inventory on hand on January 1, 20X5. During 20X5 Broom purchased $\$ 300,000$ of goods from Satellite and had $\$ 100,000$ remaining on hand at the end of 20X5. Satellite normally prices its items so that their cost is 70 percent of sale price. On January 1, 20X5. Satellite held inventory that it purchased from Broom for $\$ 50,000$. Broom's cost of producing the items was $\$ 30,000$. Satellite sold all the merchandise in $20 \times 5$ and made no inventory purchases from Broom during 20X5.

On July 15, 20X5, Satellite sold land that it had purchased for $\$ 240,000$ to Broom for $\$ 360,000$. The companies file separate tax returns and have a 40 percent income tax rate. Broom does not record tax expense on its portion of the undistributed earnings of Satellite. Tax expense recorded by Broom in 20X5 with regard to its investment in Satellite is based on dividends received from Satellite in 20X5. In computing taxable income, 80 percent of intercorporate dividend payments are exempt from tax.

Satellite reported net income of $\$ 190,000$ for 20X5 and net assets of $\$ 900,000$ on December 31. 20X5. Broom's reported income before investment income from Satellite and income tax expense was $\$ 700.000$ for $20 X 5$. Dividends of $\$ 150.000$ and $\$ 400,000$ were paid by Satellite and Broom. respectively, in $20 \mathrm{X} 5$.

Required

a. Give the journal entries recorded on the books of Broom Manufacturing during 20X5 to reflect its ownership of Satellite Industries.

b. Compute consolidated net income for 20X5.

c. Compute the income assigned to the noncontrolling interests in the 20X5 consolidated income statement.

d. Compute the amount assigned to the noncontrolling interest in the consolidated balance sheet prepared as of December 31, 20X5.

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