Pablo Corporation purchases a 90 percent interest in Song Corporation for $1,260,000 on January 1, 2016, when the book value of Song’s net assets equals fair value at $1,300,000. The excess is...

Pablo Corporation purchases a 90 percent interest in Song Corporation for $1,260,000 on January 1, 2016, when the book value of Song’s net assets equals fair value at $1,300,000. The excess is allocated to a patent with a ten-year remaining useful life. Song reports a net income of $130,000 in 2016. Pablo’s ending inventory balance includes unrealized profits of $20,000 from Song.

1. Under equity theory, the noncontrolling interest at acquisition is:

a $130,000

b $126,000

c $140,000

d None of the above

2. Under parent-company theory, the amount of unrealized profit to be eliminated is:

a $20,000

b $18,000

c $2,000

d None of the above

3. Under entity theory, the noncontrollling interest share is:

a $13,000

b $10,000

c $12,600

d None of the above