Pigeon Corporation acquired an 80% interest in Statue Company on January 1,2014,for $90,000 cash when Statue had Capital Stock of $60,000 and Retained Earnings of $40,000.The fair value/book value differential was attributable to equipment with a 10-year (straight-line)life.Statue suffered a $10,000 net loss in 2014 and paid no dividends.At year-end 2014,Statue owed Pigeon $18,000 on account.Pigeon's separate income for 2011 was $150,000.Controlling interest share of consolidated net income for 2014 was
A)$140,000.
B)$141,000.
C)$142,000.
D)$150,000.

Question

Quizplus · Accepted Answer

First, we need to calculate the initial investment cost using the acquisition method:

Purchase price = $90,000 
Fair value of net assets acquired: 
Capital stock = $60,000 
Retained earnings = $40,000 
Total fair value of net assets acquired = $100,000

Thus, the fair value/book value differential is $10,000 and is attributable to equipment.

For the consolidated income statement:

Statue's net loss = ($10,000) 
Controlling interest share (80%) =  ($8,000) 
Pigeon's separate income = $150,000 
Controlling interest share (80%) = $120,000 
Add: Elimination of intercompany transaction (owed from Statue to Pigeon) = $18,000

Consolidated net income = $130,000

Therefore, the controlling interest share of consolidated net income for 2014 is $141,000 (80% of $130,000). Option B is the correct answer.

Pigeon Corporation Acquired an 80% Interest in Statue Company on January