Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 20X3, Black paid $500,000 to acquire a building with a 10-year expected economic life. Black uses straight-line depreciation for all depreciable assets. On December 31, 20X8, Blue purchased the building from Black for $180,000. Blue reported income, excluding investment income from Black, of $140,000 and $162,000 for 20X8 and 20X9, respectively. Black reported net income of $30,000 and $45,000 for 20X8 and 20X9, respectively.
Based on the preceding information, the amount to be reported as consolidated net income for 20X8 will be:

Question

Quizplus · Accepted Answer

The consolidated net income for 20X8 is $190,000. This is calculated by adding the net income of Blue and Black, and then eliminating the intercompany gain on the sale of the building. The intercompany gain is calculated as the difference between the sale price of the building and its book value at the time of the sale. In this case, the intercompany gain is $180,000 - $120,000 = $60,000. The consolidated net income is then calculated as $140,000 + $30,000 - $60,000 = $190,000.

Blue Corporation Holds 70 Percent of Black Company's Voting Common