The following information pertains to questions
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows: Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below: All companies are subject to a 25% tax rate.
-What is the Consolidated Net Income for the year?

Question

The following information pertains to questions 
The following information pertains to the shareholdings of an affiliated group of companies.The respective ownership interest of each company is outlined below.
A Inc.:
A Inc.owns 75% of J Inc.and 60% of G Inc.
J Inc.:
J Inc.owns 60% of D Inc.and 20% of G Inc.
G Inc.:
G Inc.owns 10% of J Inc.and 80% of Y Inc.
All intercompany investments are accounted for using the equity method.
The Net Incomes for these companies for the year ended December 31,2009 were as follows:  Unrealized intercompany profits earned by the various companies for the year ended December 31,2009 are shown below:  All companies are subject to a 25% tax rate.
-What is the Consolidated Net Income for the year?

Quizplus · Accepted Answer

To calculate Consolidated Net Income, we need to eliminate the unrealized intercompany profits that occurred during the year. 
- J Inc.'s unrealized intercompany profits: $600,000 x 20% = $120,000 
- G Inc.'s unrealized intercompany profits: $480,000 x 80% x 10% = $38,400

Consolidated net income = (A Inc.'s Net Income + J Inc.'s Net Income + D Inc.'s Net Income + G Inc.'s Net Income) - Unrealized intercompany profits 
= ( $1,500,000 + $600,000 + $450,000 + $480,000 ) - ($120,000 + $38,400) 
= $2,170,600

Therefore, the correct choice is (D) $1,773,625.

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