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

Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are $200,000, $240,000, and $260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and Badock.

-The net income reported for Pahm Corporation for the current year is
A)$504,800.
B)$516,800.
C)$545,200.
D)$557,200.

Question

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

Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi's book value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock Corporation, which was purchased at book value. The separate net incomes of Pahm, Abussi, and Badock (excluding investment income) for the year are $200,000, $240,000, and $260,000, respectively. There were no fair value/book value differences in the assets and liabilities of Pahm, Abussi and Badock.

-The net income reported for Pahm Corporation for the current year is
A)$504,800.
B)$516,800.
C)$545,200.
D)$557,200.

Quizplus · Accepted Answer

Pahm Corporation's reported net income includes its own net income plus its share of Abussi's net income (including Abussi's share of Badock's net income). Pahm's own net income is $200,000. Pahm owns 80% of Abussi, which has a net income of $240,000, so Pahm's share is 0.8 * $240,000 = $192,000. Abussi owns 60% of Badock, which has a net income of $260,000, so Abussi's share is 0.6 * $260,000 = $156,000. Pahm's share of Abussi's share of Badock's net income is 0.8 * $156,000 = $124,800. Therefore, Pahm's total reported net income is its own net income plus its share of Abussi's net income plus its share of Abussi's share of Badock's net income: $200,000 + $192,000 + $124,800 = $516,800.

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