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On January 1, Year 1, Entity A acquired 60% of Entity B's voting interests for $100,000. The carrying amount of Entity B's assets and liabilities

On January 1, Year 1, Entity A acquired 60% of Entity B's voting interests for $100,000. The carrying amount of Entity B's assets and liabilities on that date equals their fair values. The noncontrolling interest (NCI) is measured at its fair value of $50,000. Entity A and Entity B use the same accounting principles, and no consolidating adjustments need to be made for intraentity transactions, etc., except as described below.

Account Entity B Entity A
Cash 124,000 69,000
Trade receivables 36,000 29,000
Inventories 63,000 34,000
Current investments - 24,000
PPE (net) 106,000 50,000
Investment in Entity B - 100,000
Trade payables (29,000) (52,000)
Liability for employee benefits (43,000) (62,000)
Noncurrent loans payable (90,000) -
Common stock (33,000) (40,000)
Additional paid-in capital (37,000) (21,000)
Retained earnings January 1, Year 1 (55,000) (78,000)
Net sales (150,000) (120,000)
Cost of sales 50,000 61,000
General and administrative expenses 8,000 17,000
Interest expense 4,000 6,000
Dividend income received from Entity B (24,000)
Income tax expense 6,000 7,000
Dividends declared and paid 40,000

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  • n its separate financial statements, Entity A accounts for its investment in the subsidiary (Entity B) according to the cost model. Thus, dividends from the subsidiary are recognized as income.
  • During Year 1, Entity B distributed a cash dividend of $40,000.
  • On December 31, Year 1, Entity A sold on credit an inventory item with a cost of $20,000 to Entity B for $28,000. This item is in Entity B's inventory at year end.
  • Net sales
    Cost of sales
    Dividend income
    Net income
    Net income attributable to the NCI
    Net income attributable to the parent

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