I am wondering if I should bother attempting to solve a problem like the one below… For those that have taken the FAR section, Have you encountered something like this in your MCQ or sim of the FAR test? it just seams so long… it could take me about 10min or 15 min to solve a problem like this
For those using Becker this is problem: CPA2013-00427
On January 1, Year 1, Dallas, Inc. acquired 80% of Style, Inc.'s outstanding common stock for $120,000. On that date, the carrying amounts of Style's assets and liabilities approximated their fair values. During Year 1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows:
Dallas Style
12/31/Year 1 12/31/Year 1 1/1/Year 1
Investment in Style (equity method) $132,000
Other assets 138,000 $115,000 $100,000
Total $270,000 $115,000 $100,000
Common stock $50,000 $20,000 $20,000
Additional paid-in capital 80,250 44,000 44,000
Retained earnings 139,750 51,000 36,000
Total $270,000 $115,000 $100,000
What amount of total stockholders' equity should be reported in Dallas' December 31, Year 1, consolidated balance sheet?
A. $303,000
b. $270,000
c. $385,000
d. $286,000
Explanation
Choice “a” is correct, $303,000 total consolidated stockholders' equity. Dallas' consolidated stockholders' equity will be the parent company stockholders' equity plus the noncontrolling interest on December 31, Year 1:
Common stock $ 50,000
Additional paid-in capital 80,250
Noncontrolling interest 33,000
Retained earnings 139,750
Total $ 303,000
The December 31, Year 1 noncontrolling interest of $33,000 is calculated as follows:
Noncontrolling interest, 1/1 $ 30,000*
+ NCI share of net income 4,000**
– NCI share of dividends (1,000) $ = $5,000 x 20%
Noncontrolling interest, 12/31 $ 33,000
* The noncontrolling interest on 1/1 is calculated as follows:
$120,000 acquisition cost = FV of Style x 80%
FV of Style = $150,000
Noncontrolling interest = $150,000 x 20% = $30,000
** The noncontrolling shareholders' share of Style's net income is calculated as follows:
Style RE, 1/1 $ 36,000
+ Net income 20,000 $ (plug)
– Dividends (5,000)
Style RE, 12/31 $ 51,000
Noncontrolling share of Style's net income = $20,000 x 20% = $4,000
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