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Tray Co Reported Current Earnings of $560,000 While Paying $56,000 in in Cash

question 70

Multiple Choice

Tray Co. reported current earnings of $560,000 while paying $56,000 in cash dividends. Sparrish Co. earned $140,000 in net income and distributed $14,000 in dividends. Tray held a 70% interest in Sparrish for several years, an investment that it originally acquired by transferring consideration equal to the book value of the underlying net assets. Tray used the initial value method to account for these shares.
On January 1, 2013, Sparrish acquired in the open market $70,000 of Tray's 8% bonds. The bonds had originally been issued several years ago at 92, reflecting a 10% effective interest rate. On the date of the bond purchase, the book value of the bonds payable was $67,600. Sparrish paid $65,200 based on a 12% effective interest rate over the remaining life of the bonds.
What is the non-controlling interest's share of the subsidiary's net income?

Definitions:

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.

Interest Accrual

A process where interest that has been earned or incurred but not yet paid is recognized and recorded within accounting periods.

Accounts Payable Turnover Ratio

A financial ratio that measures how quickly a company pays off its suppliers by dividing the total purchases by the average accounts payable.

Suppliers

Entities that provide goods or services to another entity, typically within a supply chain.