Pinta Company acquired an 80% interest in Strummer Company on January 1, 2016, for $270,000 cash when Strummer Company had common stock of $150,000 and retained earnings of $150,000. All excess was attributable to plant assets with a 10-year life. Strummer Company made $30,000 in 2016 and paid no dividends. Pinta Company's separate income in 2016 was $375,000. Controlling interest in consolidated net income for 2016 is:
A) $405,000.
B) $399,000.
C) $396,000.
D) $375,000.

Question

Quizplus · Accepted Answer

The controlling interest in consolidated net income includes Pinta Company's separate income and 80% of Strummer Company's net income, adjusted for the excess depreciation on the plant assets. Strummer's net income is $30,000, of which 80% is $24,000. The excess purchase price over book value attributable to plant assets is $270,000 - ($150,000 common stock + $150,000 retained earnings) = -$30,000, indicating no goodwill but an excess allocated to plant assets, which is depreciated over 10 years, resulting in an excess depreciation of $3,000 per year. Thus, the adjustment to Strummer's net income is -$3,000 (80% of $3,000 = $2,400), making the adjusted net income from Strummer $21,600 ($24,000 - $2,400). Adding this to Pinta's separate income of $375,000 gives a total controlling interest in consolidated net income of $396,000 ($375,000 + $21,600).

Pinta Company Acquired an 80% Interest in Strummer Company on January