Selectron Inc. acquired 60% of Insor Inc. on January 1, 2016 for $180,000, when Insor's Common Shares and Retained Earnings were worth $60,000 and $180,000 respectively. Insor's fair values approximated their book values on that date. Selectron currently uses the Equity Method to account for its investment in Insor.
During 2016, investment Income in the amount of $12,000 and Dividends in the
amount of $1,200 were recorded in Selectron's investment in Insor account.
During 2017, investment income in the amount of $24,000 and Dividends in the
amount of $2,400 were recorded in Selectron's investment in Insor account.
Typically, Insor declares dividends in the amount of 10% of its earnings.
Required:
a) Compute Insor's net income for 2016 and 2017.
b) Compute the amount of dividends declared by Insor in each year.
c) Compute the balance in the non-controlling interest count as at December 31,
2017.
a) Insor's Net Income for 2016 and 2017 had to be $20,000 and $40,000 respectively.
Insor's Net Income for 2016 is calculated as follows:
2016 Net Income flowing through investment account = $12,000;
$12,000/60% = $20,000
Insor's 2017 net income would be calculated in the same manner, and would be $40,000.
b) Dividends, 2016 = $20,000 × 10 % = $2,000 (or $1,200/60%) Dividends, 2017 = $4,000.
c) Non-Controlling Interest:
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