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 taking the net income of the parent company (Cashen Co.) and adding the portion of the subsidiary's earnings that belong to the parent company.

Cashen Co.'s net income = $3,180,000 
Janex Corp.'s earnings - Janex Corp.'s dividends = $432,000 - $120,000 = $312,000 
Cashen Co.'s share of Janex Corp.'s earnings = 100% x $312,000 = $312,000

Consolidated net income = Cashen Co.'s net income + Cashen Co.'s share of Janex Corp.'s earnings - Amortization of allocations 
= $3,180,000 + $312,000 - $24,000 
= $3,468,000

Therefore, the answer is D) $3,588,000.

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