Separate earnings and investment percentages for three affiliates for 2014 are as follows:

Separate Percentage Interest Percentage Interest
Earnings in Acres in Bain
Palace Company $450,000 80%
Acres Inc 200,000 70%
Bain Corporation 160,000 10%

Assume the investments were acquired at a cost equal to the book value of each investment, which also equals the fair value. Separate earnings do not include investment income.

Required:
1. Calculate revised net incomes for Palace, Acres, and Bain by using the conventional method.
2. Determine the controlling interest share of consolidated net income and the noncontrolling interest shares.
What will be an ideal response?

Requirement 1
Equations:
P = Income of Palace on a consolidated basis
A = Income of Acres on a consolidated basis
B = Income of Bain on a consolidated basis

P = $450,000 + 0.8A
A = $200,000 + 0.7B
B = $160,000 + 0.1A

Computations:
A = $200,000 + 0.7($160,000 + 0.1A)
A = $200,000 + $112,000 + 0.07A
0.93A = $312,000
A = $335,484
P = $450,000 + 0.8 × ($335,484)
P = $450,000 + $268,387
P = $718,387
B = $160,000 + 0.1($335,484)
B = $193,548
Palace = $718,387
Acres = $335,484
Bain = $193,548

Requirement 2
Controlling interest share of consolidated net income $718,387
Noncontrolling interest share (in Acres) (10% × $335,484) 33,548
Noncontrolling interest share (in Bain) (30% × $193,548) 58,064
Total consolidated net income $809,999

Check:
Total separate net income ($450,000 + $200,000 + $160,000) $810,000