Peacoat Corporation acquired 80 percent of Sweater Corporation's common stock on March 31,20X4 for $360,000.At that date,the fair value of the noncontrolling interest was $90,000.On January 1,20X4,Sweater reported the following stockholders' equity balances:
Sweater reported net income of $100,000 in 20X4,earned uniformly throughout the year,and declared and paid dividends of $40,000 on December 31,20X4.Peacoat reported retained earnings of $500,000 on January 1,20X8,and had 20X4 income of $200,000 from its separate operations.Peacoat paid dividends of $50,000 on December 31,20X4.Peacoat accounts for its investment in Sweater Corporation using the fully adjusted equity method.
-Based on the information provided,what is the consolidated income to the controlling interest reported for the year 20X4?

Question

Peacoat Corporation acquired 80 percent of Sweater Corporation's common stock on March 31,20X4 for $360,000.At that date,the fair value of the noncontrolling interest was $90,000.On January 1,20X4,Sweater reported the following stockholders' equity balances:
  Sweater reported net income of $100,000 in 20X4,earned uniformly throughout the year,and declared and paid dividends of $40,000 on December 31,20X4.Peacoat reported retained earnings of $500,000 on January 1,20X8,and had 20X4 income of $200,000 from its separate operations.Peacoat paid dividends of $50,000 on December 31,20X4.Peacoat accounts for its investment in Sweater Corporation using the fully adjusted equity method.
-Based on the information provided,what is the consolidated income to the controlling interest reported for the year 20X4?

Quizplus · Accepted Answer

The consolidated net income is calculated by adding the net income of both Peacoat and Sweater and adjusting for any minority interest in Sweater's net income.

Sweater's net income = $100,000
Peacoat's share of Sweater's net income (80%) = $80,000
Consolidated net income = $80,000 + $200,000 = $280,000

However, since the question asks for the consolidated income to the controlling interest, we need to deduct the portion of Sweater's net income attributable to the noncontrolling interest:

Noncontrolling interest in Sweater's net income = 20% x $100,000 = $20,000
Consolidated income to the controlling interest = $280,000 - $20,000 = $260,000

Therefore, the correct answer is C) $260,000.

Peacoat Corporation Acquired 80 Percent of Sweater Corporation's Common Stock