Question
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Companys capital stock for $636,000 in cash and other assets. Nephew had a book
On January 1, 2012, Uncle Company purchased 80 percent of Nephew Companys capital stock for $636,000 in cash and other assets. Nephew had a book value of $752,000 and the 20 percent noncontrolling interest fair value was $159,000 on that date. On January 1, 2011, Nephew had acquired 30 percent of Uncle for $336,250. Uncles appropriately adjusted book value as of that date was $1,087,500. |
Separate operating income figures (not including investment income) for these two companies follow. In addition, Uncle declares and pays $30,000 in dividends to shareholders each year and Nephew distributes $4,000 annually. Any excess fair-value allocations are amortized over a 10-year period. |
Year | Uncle Company | Nephew Company | ||
2012 | $ | 183,000 | $ | 43,800 |
2013 | 214,000 | 47,800 | ||
2014 | 243,000 | 55,200 |
a. | Assume that Uncle applies the equity method to account for this investment in Nephew. What is the subsidiarys income recognized by Uncle in 2014? Subsidiary income recognized_____________
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