On January 1,20X1,Picture Company acquired 70 percent ownership of Seven Corporation at underlying book value.The fair value of the noncontrolling interest at the date of acquisition was equal to 30 percent of the book value of Seven Corporation.On April 25,20X1,Seven purchased inventory from Picture for $45,000.Seven sold the entire inventory to an unaffiliated company for $58,000 on October 12,20X1.Picture had produced the inventory sold to Seven for $38,000.The companies had no other transactions during 20X1.
-Based on the information given above,what amount of consolidated net income will be assigned to the controlling shareholders for 20X1?

Question

Quizplus · Accepted Answer

To calculate consolidated net income, we need to first determine the separate net incomes of Picture Company and Seven Corporation.

Picture Company's separate net income:
Picture Company did not have any transactions with Seven Corporation during the year. Therefore, the separate net income of Picture Company would be $0.

Seven Corporation's separate net income:
Revenue from sale of inventory to unaffiliated company: $58,000
Cost of goods sold (from Picture Company): $38,000
Gross profit: $20,000

Since Picture Company owns 70 percent of Seven Corporation, we need to take 70 percent of Seven Corporation's separate net income to arrive at the amount of consolidated net income assigned to the controlling shareholders (Picture Company).

0.7 x $20,000 = $14,000

Therefore, the answer is B) $16,100.

On January 1,20X1,Picture Company Acquired 70 Percent Ownership of Seven