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 Paris' share of consolidated net income?

Question

Quizplus · Accepted Answer

To calculate the consolidated net income, we need to eliminate the intercompany transactions first.

Paris' dividend income from Stance of $20,000 is an intercompany transaction and needs to be eliminated. Similarly, Stance's dividend income from Paris of $5,000 needs to be eliminated.

Paris' share of Stance's net income is calculated as follows:

Stance's net income: $40,000
Add: Adjustment for excess fair value amortization ($75,000/10): $7,500
Adjusted net income: $47,500
Paris' share (80%): $38,000

Consolidated net income is calculated as follows:

Paris' net income: $200,000
Add: Paris' share of Stance's net income: $38,000
Consolidated net income: $238,000

Therefore, Paris' share of consolidated net income is $225,000 (80% of $238,000). The answer is B.