Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. $$\begin{array} { l r r }
& { \text { Jans } } & { \text { Tysk } } \
\text { Revenues } & \$ 1,080,000 & \$ 840,000 \
\text { Expenses } & 480,000 & 600,000 \
\text { Investment income } & \text { Not given } & 0 \
\text { Retained earnings, 1/1/13 } & 840,000 & 600,000 \
\text { Dividends paid } & 132,000 & 70,000
\end{array}$$ If the partial equity method had been applied, what was 2013 consolidated net income?
A)$840,000.
B)$768,400.
C)$822,000.
D)$240,000.
E)$600,000.

Question

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. $$\begin{array} { l r r } 
&  { \text { Jans } } & { \text { Tysk } } \
\text { Revenues } & \$ 1,080,000 & \$ 840,000 \
\text { Expenses } & 480,000 & 600,000 \
\text { Investment income } & \text { Not given } & 0 \
\text { Retained earnings, 1/1/13 } & 840,000 & 600,000 \
\text { Dividends paid } & 132,000 & 70,000
\end{array}$$ If the partial equity method had been applied, what was 2013 consolidated net income?
A)$840,000.
B)$768,400.
C)$822,000.
D)$240,000.
E)$600,000.

Quizplus · Accepted Answer

The consolidated net income is calculated by adding Jans' net income and Tysk's net income, then adjusting for amortization of the undervalued equipment and customer list. Jans' net income is $600,000 ($1,080,000 revenues - $480,000 expenses). Tysk's net income is $240,000 ($840,000 revenues - $600,000 expenses). The amortization for the equipment is $4,600 ($46,000/10 years) and for the customer list is $13,400 ($67,000/5 years). The total amortization is $18,000. Therefore, the consolidated net income is $822,000 ($600,000 + $240,000 - $18,000).

Jans Inc Acquired All of the Outstanding Common Stock of Tysk