Paris, Inc. owns 80 percent of the voting stock of Stance, Inc. The excess total fair value over book value was $75,000. Stance holds 10 percent of the voting stock of Paris. The payment for that investment was in excess of book value and fair value by $15,000. Any excess fair value is assigned to trademarks to be amortized over a 10-year period. During the current year, Paris reported operating income of $200,000 and dividend income from Stance of $20,000. At the same time, Stance reported operating income of $40,000 and dividend income from Paris of $5,000. What is consolidated net income?

Question

Quizplus · Accepted Answer

First, we need to determine the consolidated net income. 
Paris's operating income: $200,000 
Paris's dividend income from Stance: $20,000 
Stance's operating income: $40,000 
Stance's dividend income from Paris: $5,000

To calculate consolidated net income, we need to eliminate intercompany sales and dividends: 
Eliminate Paris's dividend income from Stance: ($20,000) 
Eliminate Stance's dividend income from Paris: ($5,000) 
Eliminate Stance's operating income from Paris: ($40,000 x 0.2) = ($8,000) 
Add the excess fair value amortization: $75,000 / 10 years = $7,500

Consolidated net income = $200,000 - $20,000 + $40,000 - $5,000 - $8,000 + $7,500 = $215,500

Therefore, the correct choice is D) $232,500.