Question

On January 3, 20X9, Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Stitch's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch. The stockholders' equity accounts of the two companies at the acquisition date are:Pleat StitchCommon Stock ($5 par value) $ 500,000 $ 200,000 Additional Paid-In Capital 300,000 80,000 Retained Earnings 350,000 150,000 Total Stockholdersâ Equity $ 1,150,000 $ 430,000 Noncontrolling interest was assigned income of $11,000 in Pleat's consolidated income statement for 20X9.Required:
1. Based on the preceding information, what will be the amount of net income reported by Stitch Corporation in 20X9?Multiple Choice:O $36,000O $66,000O $44,000O $55,000

Answer 1

Answer:

$55,000

Explanation:

Pleat's value of investment account at acquisition date: $344,000 (80%)

since the non-controlling interest has the remaining 20% of the stocks, and its book value = $200,000 + $80,000 + $150,000 = $430,000 x 20% = $86,000

since Stitch assigned $11,000 of income to the non-controlling interest, then it must have assigned $11,000 x 4 = $44,000 to Pleat

Stitch's total income = $11,000 (non-controlling) + $44,000 (Pleat) = $55,000

Answer 2

Answer:

The correct answer is option (d) $55,000

Explanation:

Given Data;

For better understanding, the given data is tabulated below.

      .................................                    Company 1          Company 2

Common Stock $5 par value        $ 500,000           $200,000                          

Additional Paid-In Capital                $300,000          $80,000

Retained Earnings                            $350,000         $150,000

Total Stockholder's Equity    $ 1,150,000               $430,000

Noncontrolling interest was assigned income of $11,000

Amount of net income reported by Stitch Corporation in 20X9 =?

Noncontrolling interest was =  20%

Controlled interest rate = 80%

The amount of net income reported=

Noncontrolling interest income / Noncontrolling interest rate

                                               = 11000/20%

                                               = 11000/0.2

                                              =$55,000