On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding vo
ID: 2565704 • Letter: O
Question
On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $547,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,800. At January 1, 2016, Star’s net assets had a total carrying amount of $425,600. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $61,600. Any remaining excess fair value over book value was attributed to a customer list developed by Star (four-year remaining life), but not recorded on its books. Star recorded net income of $53,900 in 2016 and $61,600 in 2017. Each year since the acquisition, Star has declared a $15,400 dividend. At January 1, 2018, Pride’s retained earnings show a $192,500 balance.
Selected account balances for the two companies from their separate operations were as follows:
What is consolidated net income for 2018?
Pride Star 2018 Revenues $ 383,500 $ 219,500 2018 Expenses 269,600 150,200Explanation / Answer
Fair value amortisation of equipment= 61600/8= 7700 per year
Fair value of entity on purchase= fair value of consideration given+fair value of non controlling interest= 547000+60800= 607800
Fair value of customer list= 607800- 425600-61600= 120600
Fair value amortisation of customer list= 120600/4= 30150 per year
Consolidated net income:
Net income before adjustmetns:
Pride net income= 383500-269600= 113900
Star net income= 219500-150200= 69300
Star net income after fair value amortisation= 69300- 7700-30150= 31450
Share of pirde in star net income= 31450*90%= 28305
Consolidated net income= 113900+28305= 142205
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