Liam AB acquired 80% ownership of Theo AB on January 1 for $10 million. This implied the total fair value of Theo AB was $12.5 million. The book value of Theo's net assets was $10 million, so $2.5 million was allocated to goodwill. In 2014, Theo had net income of $1.5 million, with 20% or $300,000 belonging to the noncontrolling interest. After consolidating the financial statements, the combined entity had sales of $97.5 million and net income of $4.3 million for the year.

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Answer:
Preliminary computations
Purchase price for 80% interest acquired $10,000,000
Implied fair value of Theo AB ($10,000,000 / 80%) $12,500,000
Book value of Theo AB’s net assets $10,000,000
Allocated to goodwill $2,500,000
Noncontrolling interest share:
20% of Theo AB net income ($150,000 x 20%) $ 300,000
Beginning noncontrolling interest:
20% of Beginning implied fair value of Theo $2,500,000
($12,500,000 x 20%)
LIAM AB AND SUBSIDIARY CONSOLIDATION WORKPAPER FOR THE YEAR ENDED DECEMBER 31, 2014 (IN
THOUSANDS)
d
b
c

2. Liam AB Theo AB
Adjustments and
Eliminations
Consolidated
Statements
Debits Credits
Income Statement
Sales $ 67,000 $ 30,500 $ 97,500
Income from Theo AB $ 1,200 a. 1,200
Cost of sales -$ 42,000 -$ 25,000 -$ 67,000
Expenses -$ 21,900 -$ 4,000 -$ 25,900
Noncontrolling interest share b. 300 -$ 300
Controlling share of net
income $ 4,300 $ 1,500 $ 4,300
Retained Earnings Statement
Retained earnings - Liam AB $ 11,600 $ 11,600
Retained earnings - Theo AB $ 8,000 c. 8,000
Controlling share of net
income
$ 4,300 $ 1,500 $ 4,300
Dividends -$ 3,000 -$ 500 a. 400 -$ 3,000
b. 100
Retained earnings - December
31 $ 12,900 $ 9,000 $ 12,900
Balance Sheet

3. Cash $ 800 $ 600 $ 1,400
Accounts receivable-net $ 1,300 $ 800 $ 2,100
Dividends receivable $ 400 d. 400
Inventories $ 2,600 $ 400 $ 3,000
Other current assets $ 1,200 $ 1,800 $ 3,000
Land $ 3,000 $ 4,200 $ 7,200
Buildings-net $ 3,200 $ 3,600 $ 6,800
Equipment-net $ 2,200 $ 2,400 $ 4,600
Investment in Theo AB $ 10,800 a. 800
c. 10,000
Goodwill c. 2,500 $ 2,500
Total Assets $ 25,500 $ 13,800 $ 30,600
Accounts payable $ 1,000 $ 400 $ 1,400
Dividends payable $ 2,500 $ 500 d. 400 $ 2,600
Notes payable $ 4,100 $ 1,900 $ 6,000
Capital Stock, $10 par $ 5,000 $ 2,000 c. 2,000 $ 5,000
Retained earnings $ 12,900 $ 9,000 $ 12,900
$ 25,500 $ 13,800

4. Noncontrolling interest January
1 c. 2,500
Noncontrolling interest
December 31 b. 200 $ 2,700
Total liabilities and equities $ 30,600