Exacto Company reported the following net income and dividends for the years indicated: Year Net Income Dividends
20X5 $35,000 $12,000
20X6 45,000 20,000
20X7 30,000 14,000
True Corporation acquired 75 percent of Exacto’s common stock on January 1, 20X5. On that date, the fair value of Exacto’s net assets was equal to the book value. True uses the equity method in accounting for its ownership in Exacto and reported a balance of $259,800 in its investment account on December 31, 20X7.
Required
a. What amount did True pay when it purchased Exacto’s shares?
b. What was the fair value of Exacto’s net assets on January 1, 20X5?
c. What amount was assigned to the NCI shareholders on January 1, 20X5?
d. What amount will be assigned to the NCI shareholders in the consolidated balance sheet pre-pared at December 31, 20x7?

A. $211,800

B. $282,400

C. $70,600

D. $ 86,600

Explanation :

A. Calculation for the amount that True pay when it purchased

Balance in investment account, December 31, 20x7$259,800

Cumulative earnings since acquisition$110,000

(35,000+45,000+30,000)

Less Cumulative dividends since acquisition(46,000)

(12,000+20,000+14,000)

Total $64,000

(110,000-46,000)

Proportion of stock held by True Corporationx 0.75

Total amount debited to Investment account(48,000)

(0.75*64,000)

Purchase amount on January 1, 20X5 $211,800

(259,000-48,000)

B. Calculation for fair value of Exacto’s net assets on January 1, 20X5

True Corporation’s Purchase amount $211,800

÷True Corp.’s percentage 0.75

Fair Value of Exacto Company’s Net Assets $282,400

C. Calculation for the amount that was assigned to the NCI shareholders on January 1, 20X5

Fair Value of Exacto Company’s Net Asset$282,400

× Exacto Company’s percentage 0.25

(100%-75%)

NCI’s portion $70,600

D. Calculation for the amount that will be assigned to the NCI shareholders

True Corp’s investment balance$259,800

÷True Corp’s percentage0.75

=Fair Value of Exacto’s Net Assets 20X7 $346,400

×Exacto Company’s percentage 0.25

(100%-75%)

NCI’s Portion, December 31, 20X7 $ 86,600

($346,400×0.25)

Merry Christmas :)

Step-by-step explanation:

Hope everyone has a good holiday season and new year.