Scott Co. acquired 70% of Gregg Co. for $525,000 on December 31, 2019 when Gregg's book value was $580,000. The Gregg stock was not actively traded. On the date of acquisition, Gregg had equipment (with a ten-year life)that was undervalued in the financial records by $170,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid. What amount of consolidated net income for 2020 is attributable to Scott's controlling interest?

Question

Scott Co. acquired 70% of Gregg Co. for $525,000 on December 31, 2019 when Gregg's book value was $580,000. The Gregg stock was not actively traded. On the date of acquisition, Gregg had equipment (with a ten-year life)that was undervalued in the financial records by $170,000. One year later, the two companies provided the selected amounts shown below. Additionally, no dividends have been paid.  What amount of consolidated net income for 2020 is attributable to Scott's controlling interest?

Quizplus · Accepted Answer

To calculate the consolidated net income attributable to Scott's controlling interest, we need to first calculate the subsidiary's net income for 2020 and then adjust it for the portion that belongs to the non-controlling interest.

Step 1: Calculate the subsidiary's net income for 2020

- Gregg's net income for 2020 = $400,000
- Add amortization of equipment undervaluation = $17,000 ($170,000/10)
- Adjust for non-controlling interest in Gregg Co. = $120,900 ($400,000 x 30%)

- Gregg's net income attributable to Scott's controlling interest = $296,100 ($400,000 + $17,000 - $120,900)

Step 2: Calculate the consolidated net income attributable to Scott's controlling interest

- Consolidated net income = Scott's net income + share of subsidiary's net income
- Scott's net income = $480,000 ($600,000 x 80%)
- Consolidated net income attributable to Scott's controlling interest = $1,160,100 ($480,000 + $296,100)

Therefore, the answer is C) $680,100.

Scott Co Acquired 70% of Gregg Co