Cashen Co. paid $2,400,000 to acquire all of the common stock of Janex Corp. on January 1, 2010. Janex's reported earnings for 2010 totaled $432,000, and it paid $120,000 in dividends during the year. The amortization of allocations related to the investment was $24,000. Cashen's net income, not including the investment, was $3,180,000, and it paid dividends of $900,000.
What is the amount of consolidated net income for the year 2010?

Question

Quizplus · Accepted Answer

Consolidated net income is calculated by adding the parent company's net income (excluding investment income) to the subsidiary's net income and adjusting for any intercompany transactions.

Cashen's net income (excluding investment income) = $3,180,000

Janex's net income = $432,000

Therefore, consolidated net income = $3,180,000 + $432,000 - $24,000 (amortization of allocations) = $3,588,000

Dividends paid by Janex do not affect consolidated net income, as they are already reflected in the subsidiary's net income.

Cashen Co Paid $2,400,000 to Acquire All of the Common Stock