Campbell Inc. owned all of Gordon Corp. For 2011, Campbell reported net income (without consideration of its investment in Gordon) of $280,000 while the subsidiary reported $112,000. The subsidiary had bonds payable outstanding on January 1, 2011, with a book value of $297,000. The parent acquired the bonds on that date for $281,000. During 2011, Campbell reported interest income of $31,000 while Gordon reported interest expense of $29,000. What is consolidated net income for 2011?
A) $406,000.
B) $374,000.
C) $378,000.
D) $410,000.
E) $394,000.

Question

Quizplus · Accepted Answer

The consolidated net income is calculated by combining the net incomes of the parent and subsidiary companies, eliminating any intercompany transactions. In this case, the intercompany transaction is the sale of bonds from Gordon to Campbell. The gain on the sale of the bonds is eliminated in consolidation, and the interest income and expense are also eliminated. The consolidated net income is therefore $280,000 + $112,000 = $406,000.