LEO Inc Acquired a 60% Interest in MARS Inc

question 18

Multiple Choice

LEO Inc. acquired a 60% interest in MARS Inc. on January 1, 2012 for $400,000. Unless otherwise stated, LEO uses the Cost method to account for its investment MARS Inc. On the acquisition date, MARS had common stock and retained earnings valued at $100,000 and $150,000 respectively. The acquisition differential was allocated as follows: $80,000 to undervalued inventory. $40,000 to undervalued equipment. (to be amortized over 20 years) The following took place during 2012: ▪MARS reported a net income and declared dividends of $25,000 and $5,000 respectively.
▪LEO's December 31, 2012 inventory contained an intercompany profit of $10,000.
▪LEO's net income was $75,000. The following took place during 2013:
▪MARS reported a net income and declared dividends of $36,000 and $6,000 respectively.
▪MARS' December 31, 2013 inventory contained an intercompany profit of $5,000.
▪LEO's net income was $48,000. Both companies are subject to a 25% tax rate. All intercompany sales as well as sales to outsiders are priced to provide the selling company with gross Margin of 20%. What would be the change in the non-controlling interest account for 2013?

• A) Non-controlling interest would increase by $14,200.
• B) Non-controlling interest would increase by $16,800.
• C) Non-controlling interest would decrease by $45,000.
• D) Non-controlling interest would increase by $48,000.

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Definitions:

Process Innovation

The development and implementation of new or improved production or delivery methods, significantly enhancing efficiency or quality.

Process Innovation

The introduction of new or significantly improved methods, practices, or techniques in the creation and delivery of goods and services.

Ready To Assemble

Refers to furniture or other goods sold in a flat-pack form, which require the customer to assemble the product themselves.

Social Business Innovation

Innovation that uses business models to address important social problems.