Question

On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $80,000. 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 $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride’s retained earnings show a $250,000 balance. Selected account balances for the two companies from their separate operations were as follows: Pride Star 2018 Revenues $498,000 $285,000 2018 Expenses 350,000 195,000 LO 4-4 What is consolidated net income for 2018? $194,000 $197,500 $203,000 $238,000

Answer 1

The consolidated net income for the year 2018 of pride corporation is $203000

Explanation:

Consideration transferred by Pride $540,000

Non controlling interest fair value 60,000 =

Star acquisition-date fair value $600,000  -Star book value 420,000

= Excess fair over book value $180,000

Amort.

To equipment (8 year remaining life) $ 80,000/8= $10,000

To customer list (4 year remaining life) 100,000/4 =$25,000

                                                                                =   $35,000

Combined revenues=$498000+$285000= $783,000

Combined expenses =$350000+$195000=$545,000

Excess fair value amortization =$35,000  -$545000=$ 580,000

Consolidated net income =Combined revenues-Excess fair value amortization

Consolidated net income=$783,000 -$ 580,000 =$203,000

Hence the consolidate net income for the year 2018 is $203000