On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts: Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year. If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of consolidated net income?

Question

On January 1, 2010, Cale Corp. paid $1,020,000 to acquire Kaltop Co. Kaltop maintained separate incorporation. Cale used the equity method to account for the investment. The following information is available for Kaltop's assets, liabilities, and stockholders' equity accounts:  Kaltop earned net income for 2010 of $126,000 and paid dividends of $48,000 during the year. If Cale Corp. had net income of $444,000 in 2010, exclusive of the investment, what is the amount of consolidated net income?

Quizplus · Accepted Answer

Under equity method, Cale Corp. recognizes its share of Kaltop's net income, which is $126,000 x 100% = $126,000. 
Kaltop's dividends do not affect Cale Corp.'s income statement. 
Therefore, Cale Corp.'s consolidated net income is $444,000 + $126,000 = $570,000.
Thus, the best answer is choice letter B.