Case 1: Pop pays $176,800 for an 80% interest in the common stock of Son on 1/1/18. On that date Sons stockholders equity included $120,000 of common stock and $60,000 in retained earnings. The implied total fair value of Son is $220,000 ($176,000 / 80%). The $40,000 excess fair value is due to unrecorded patents with a 10 year remaining life.

Son earns net income of $50,000 during 2018 and pays $30,000 in dividends. Son earns net income of $60,000 during 2019 and pays $30,000 in dividends.

Pop records the following entries during 2018 (in thousands):

January 1

Investment in Son (+A)

Cash (-A)

• To record 80% purchase

December 31

Investment in Son (+A)

Cash (+A)

Income from Son (+R,+SE)

• To record 80% of Sons income and dividends

Income from Son (-R,-SE)

Investment in Son (-A)

• To record amortization of excess allocated to patents ($40 / 10 yrs.) * 80%

The following eliminating entries are required at 12/31/18:

A Income from Son (-R,-SE)

Dividends (+SE)

Investment in Son (-A)

- Reverse equity method entries and restore investment account to balance at acquisition date

B Noncontrolling interest share (-SE)

Dividends (+SE)

Noncontrolling interest (+SE)

• Record noncontrolling interest and dividend shares

C Retained earnings Son (-SE)

Common stock Son (-SE)

Patents(+A)

Investment in Son (-A)

Noncontrolling interest (+SE)

• Eliminate investment and equity accounts, enter unamortized patents & record beginning noncontrolling interest

D Expenses (E,-SE)

Patents (-A)

• Record patent amortization