On January 1,20X9,A Company acquired 85 percent of B Company's voting common stock for $425,000.At that date,the fair value of the noncontrolling interest of B Company was $75,000.Immediately after A Company acquired its ownership,B Company acquired 75 percent of C Company's stock for $150,000.The fair value of the noncontrolling interest of C Company was $50,000 at that date.At January 1,20X9,the stockholders' equity sections of the balance sheets of the companies were as follows:
During 20X9,A Company reported operating income of $175,000 and paid dividends of $50,000.B Company reported operating income of $125,000 and paid dividends of $40,000.C Company reported net income of $100,000 and paid dividends of $25,000.
-Based on the information provided,what amount of income will be assigned to the controlling interest in the consolidated income statement for 20X9?

Question

On January 1,20X9,A Company acquired 85 percent of B Company's voting common stock for $425,000.At that date,the fair value of the noncontrolling interest of B Company was $75,000.Immediately after A Company acquired its ownership,B Company acquired 75 percent of C Company's stock for $150,000.The fair value of the noncontrolling interest of C Company was $50,000 at that date.At January 1,20X9,the stockholders' equity sections of the balance sheets of the companies were as follows:
  During 20X9,A Company reported operating income of $175,000 and paid dividends of $50,000.B Company reported operating income of $125,000 and paid dividends of $40,000.C Company reported net income of $100,000 and paid dividends of $25,000.
-Based on the information provided,what amount of income will be assigned to the controlling interest in the consolidated income statement for 20X9?

Quizplus · Accepted Answer

According to the question, A Company acquired 85% of B Company's voting common stock and therefore has a controlling interest in B Company. Similarly, B Company acquired 75% of C Company's stock and therefore has a controlling interest in C Company.

To prepare the consolidated financial statement, we need to eliminate the inter-company transactions and adjust the fair value of non-controlling interest in B Company and C Company at the time of acquisition.

The consolidated net income can be calculated as follows:

A Company's share of B Company's net income = 85% x $125,000 = $106,250

A Company's share of C Company's net income = 85% x 75% x $100,000 = $63,750

Total consolidated net income = $106,250 + $63,750 + A Company's net income = $106,250 + $63,750 + $175,000 = $345,000

Therefore, the amount of income assigned to the controlling interest in the consolidated income statement for 20X9 is $345,000, Option B is correct.

On January 1,20X9,A Company Acquired 85 Percent of B Company's