In 2014, Cadence Corp. purchased 100% of the common stock of Tempo Tech for a to
ID: 2719550 • Letter: I
Question
In 2014, Cadence Corp. purchased 100% of the common stock of Tempo Tech for a total purchase price of $6,362 million. On Cadence’s unconsolidated accounts, it uses the equity method to account for Tempo Tech. For public disclosure, Cadence Corp. consolidates the accounts of Tempo Tech. Which of the following is true?
The consolidated shareholders’ equity exceeds the unconsolidated shareholders’ equity by $6,362 million.
The consolidated total assets are greater than the unconsolidated total assets by $6,362 million.
Net income is the same on the consolidated and unconsolidated financial statements.
The consolidated net income is greater than the unconsolidated net income.
The consolidated shareholders’ equity exceeds the unconsolidated shareholders’ equity by $6,362 million.
The consolidated total assets are greater than the unconsolidated total assets by $6,362 million.
Net income is the same on the consolidated and unconsolidated financial statements.
The consolidated net income is greater than the unconsolidated net income.
Explanation / Answer
In the Equity method of accounting, the profits earned by investment in other companies are reported as net income.
The company reports the income earned on the investment on its income statement and the reported value is based on the firm's share of the company assets.
Hence the Statement "The consolidated net income is same as the unconsolidated net income." is true
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