A Corporation had net income of $50,000 in 2019 and $60,000 in 2020, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2019 and $40,000 in 2020. On January 1, 2020, A Corporation acquired all of the outstanding common shares of B Company for a cash payment of $300,000. Assume that there was no acquisition differential on this business combination. What net income would A Corporation report for 2019 in its comparative consolidated financial statements at the end of 2020?
A) $30,000
B) $50,000
C) $80,000
D) $100,000

Question

Quizplus · Accepted Answer

In 2019, A Corporation did not own B Company, so any income from B Company is excluded from A Corporation's net income. Therefore, A Corporation's net income for 2019 is $50,000. The acquisition of B Company happened on January 1, 2020, so B Company's net income for 2020 is included in A Corporation's consolidated financial statements. A Corporation's net income for 2020 is the sum of A Corporation's net income ($60,000) and B Company's net income ($40,000), which is $100,000. However, the question only asks for A Corporation's net income for 2019, which is before the acquisition of B Company. Therefore, A Corporation's net income for 2019 is $50,000, and the best choice is B.

A Corporation Had Net Income of $50,000 in 2019 and $60,000