On October 1,2017,Perma Company acquired for cash all of the voting common stock of Street Company.The purchase price of Street's stock equaled the book value and fair value of Street's net assets.The separate net income for each company,excluding Perma's share of income from Street was as follows: During September,Street paid $150,000 in dividends to its stockholders.For the year ended December 31,2017,Perma issued parent company only financial statements.These statements are not considered those of the primary reporting entity.Under the partial equity method,what is the amount of net income reported in Perma's income statement?

Question

On October 1,2017,Perma Company acquired for cash all of the voting common stock of Street Company.The purchase price of Street's stock equaled the book value and fair value of Street's net assets.The separate net income for each company,excluding Perma's share of income from Street was as follows:  During September,Street paid $150,000 in dividends to its stockholders.For the year ended December 31,2017,Perma issued parent company only financial statements.These statements are not considered those of the primary reporting entity.Under the partial equity method,what is the amount of net income reported in Perma's income statement?

Quizplus · Accepted Answer

Under the partial equity method, the investor company recognizes its share of the subsidiary's net income in its income statement. In this case, Perma acquired all of Street's stock, so it has 100% ownership.

From the separate net income of the two companies, we can see that Perma's share of income from Street is $4,950,000 ($11,700,000 x 100% - $6,750,000 x 100%).

Since Perma issued parent company only financial statements, only its own net income will be reported in the income statement. Therefore, the amount of net income reported in Perma's income statement is $4,950,000.

Dividends paid by Street to its stockholders do not affect Perma's income statement.

On October 1,2017,Perma Company Acquired for Cash All of the Voting