Use the following information to answer the question(s) below.

Bower Corporation purchased a 70% interest in Stage Corporation on June 1, 2013 at a purchase price of $350,000. On June 1, 2013, the book values of Stage's assets and liabilities were equal to fair values. On June 1, 2013, Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to goodwill.

During 2013, Stage earned $120,000 of net income, earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.

-Preacquisition income for 2013 is
A)$50,000.
B)$35,000.
C)$44,000.
D)$36,000.

Question

Use the following information to answer the question(s) below.

Bower Corporation purchased a 70% interest in Stage Corporation on June 1, 2013 at a purchase price of $350,000. On June 1, 2013, the book values of Stage's assets and liabilities were equal to fair values. On June 1, 2013, Stage's stockholders' equity consisted of $290,000 of Common Stock and $210,000 of Retained Earnings. All cost-book differentials were attributed to goodwill.

During 2013, Stage earned $120,000 of net income, earned uniformly throughout the year and paid $6,000 of dividends on March 1 and another $6,000 on September 1.

-Preacquisition income for 2013 is
A)$50,000.
B)$35,000.
C)$44,000.
D)$36,000.

Quizplus · Accepted Answer

Preacquisition income is the income earned by Stage Corporation before Bower Corporation acquired a 70% interest in it. Since Bower Corporation acquired a 70% interest on June 1, 2013, the preacquisition income for 2013 is 70% of the net income earned by Stage Corporation during the first five months of 2013. Stage Corporation earned $120,000 of net income during 2013, so the preacquisition income for 2013 is $50,000 (70% x $120,000 x 5/12).

Use the Following Information to Answer the Question(s) Below