Question

Patty Corporation holds 75 percent of Slider Corporation's voting common stock, acquired at book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 25 percent of the book value of Slider Corporation. On December 31, 20X8, Slider Corporation acquired 25 percent of Janet Corporation's stock. Slider records dividends received from Janet as nonoperating income. In 20X9, Janet reported operating income of $100,000 and paid dividends of $40,000. During the same year, Slider reported operating income of $75,000 and paid $20,000 in dividends.
1) Based on the information provided, what amount will be reported as consolidated net income for 20X9 under the treasury stock method?
a. $150,000
b. $100,000
c. $75,000
d. $175,000
2) Based on the information provided, what amount will be reported as income assigned to the controlling interest for 20X9 under the treasury stock method?
a. $18,750
b. $156,250
c. $175,000
d. $100,000

Answer 1

Answer:

1) d. $175,000

2) b. $156,250

Explanation:

1. The computation of net income for 20X9 under the treasury stock method is shown below:-

Net income for 20X9 under the treasury stock method = Janet Operating income + Slider operating income

= $100,000 + $75,000

= $175,000

2. The computation of income assigned to the controlling interest for 20X9 is shown below:-

income assigned to the controlling interest for 20X9 = Janet Operating income + (Slider operating income × Remaining percentage)

= $100,000 + ($75,000 × 75%)

= $100,000 + $56,250

= $156,250

Therefore we have applied the above formulas.