Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100.
-Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?
A) $400 increase.
B) $300 increase.
C) $380 increase.
D) $280 increase.
E) $480 increase.

Question

Quizplus · Accepted Answer

Kaye's income will increase by Fiore's net income minus the amortization of the excess consideration. Thus, $400 (Fiore's net income) - $20 (amortization) = $380 increase.

Kaye Company Acquired 100% of Fiore Company on January 1