Monica Company

| June 14, 2016

Question
On January 1, 2013, Monica Company acquired 70 percent of Young Company’s outstanding

common stock for $665,000. The fair value of the noncontrolling interest at the acquisition

date was $285,000. Young reported stockholders’ equity accounts on that date as follows:
Year Transfer Price
Inventory Remaining

at Year-End
(at transfer price)
2013 $60,000 $10,000
2014 80,000 12,000
2015 90,000 18,000
Common stock—$10 par value . . . . . . . . . . . . . . . . . . . . . . . . . $300,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410,000
Plymouth Sander
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 535,000 $ 115,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . 575,000 215,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 990,000 800,000
Investment in Sander . . . . . . . . . . . . . . . . . . . . . . . 1,420,000 –0–
Buildings and equipment . . . . . . . . . . . . . . . . . . . . 1,025,000 863,000
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 950,000 107,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,495,000 $ 2,100,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ (450,000) $ (200,000)
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (545,000) (450,000)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (900,000) (800,000)
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . (300,000) (100,000)
Retained earnings 12/31/15 . . . . . . . . . . . . . . . . . . (3,300,000 ) (550,000 )
Total liabilities and stockholders’ equity . . . . . . . $(5,495,000 ) $(2,100,000 )
In establishing the acquisition value, Monica appraised Young’s assets and ascertained that the

accounting records undervalued a building (with a 5-year remaining life) by $50,000. Any remaining

excess acquisition-date fair value was allocated to a franchise agreement to be amortized over 10 years.
During the subsequent years, Young sold Monica inventory at a 30 percent gross profit

rate. Monica consistently resold this merchandise in the year of acquisition or in the period

immediately following. Transfers for the three years after this business combination was created

amounted to the following:
In addition, Monica sold Young several pieces of fully depreciated equipment on January
1, 2014, for $36,000. The equipment had originally cost Monica $50,000. Young plans to

depreciate these assets over a 6-year period.
In 2015, Young earns a net income of $160,000 and declares and pays $50,000 in cash

dividends. These figures increase the subsidiary’s Retained Earnings to a $740,000 balance at

the end of 2015. During this same year, Monica reported dividend income of $35,000 and an

investment account containing the initial value balance of $665,000. No changes in Young’s

common stock accounts have occurred since Monica’s acquisition.
Prepare the 2015 consolidation worksheet entries for Monica and Young. In addition,

compute the net income attributable to the noncontrolling interest for 2015

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