Brady, Inc., a calendar-year corporation, acquires 75% of Austin Company on September 1, 2019, and an additional 10% on January 1, 2020. Total annual amortization of $8,000 relates to the first acquisition. Austin reports the following figures for 2020: Without regard for this investment, Brady independently earns $375,000 in net income during 2020.All net income is earned evenly throughout the year.What is the controlling interest in consolidated net income for 2020?

Question

Brady, Inc., a calendar-year corporation, acquires 75% of Austin Company on September 1, 2019, and an additional 10% on January 1, 2020. Total annual amortization of $8,000 relates to the first acquisition. Austin reports the following figures for 2020:  Without regard for this investment, Brady independently earns $375,000 in net income during 2020.All net income is earned evenly throughout the year.What is the controlling interest in consolidated net income for 2020?

Quizplus · Accepted Answer

First, we need to determine the portion of Austin's net income that belongs to Brady as the controlling interest in consolidated net income.

Since Brady acquired 75% of Austin on September 1, 2019, it owned Austin for 1/4 (or 3/12) of 2020, and since it acquired an additional 10% on January 1, 2020, it owned Austin for the remaining 3/4 (or 9/12) of the year.

Therefore, Brady's ownership percentage of Austin for 2020 is 75% x 3/12 + 85% x 9/12 = 81.25%.

Austin's net income for 2020 is $315,000, but we need to subtract the $8,000 annual amortization related to the first acquisition:

$315,000 - $8,000 = $307,000.

The controlling interest in consolidated net income for 2020 is then:

$375,000 x 100% + $307,000 x 81.25% = $474,450

Therefore, the answer is B: $474,450.