Question

ABC owns 80 percent of XYZ Corporation’s common stock. For the current financial year, ABC and XYZ reported sales of $500,000 and $320,000 and expenses of $280,000 and $240,000, respectively. Based on the preceding information, what is the amount of net income to be reported in the consolidated income statement for the year under the proprietary theory approach?

Answer 1

Answer:

$284,000

Explanation:

                     ABC Corporation

       Consolidate Income Statement

For the year ended, 31 December, 20XX

Particulars               ABC                   XYZ                

Sales                     $500,000         320,000                        

Less: Expenses   $(280,000)      $(240,000)

Net Income          $220,000          $80,000                

Consolidated Income for the year under the proprietary theory approach for ABC corporation = $220,000 + (80,000 × 80%) = $220,000 + 64,000

= $284,000

According to the proprietary theory approach, the wholly-owned company will get the same percentage it owns the proportionate of that subsidiary company or companies.