Question

On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $456,000 cash. The acquisition-date fair value of the noncontrolling interest was $50,600. At January 1, 2016, Star’s net assets had a total carrying amount of $354,200. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $51,200. 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 $44,800 in 2016 and $51,200 in 2017. Each year since the acquisition, Star has declared a $12,800 dividend. At January 1, 2018, Pride’s retained earnings show a $160,000 balance.

Selected account balances for the two companies from their separate operations were as follows:

	Pride			Star
2018 Revenues	$	318,800		$	182,500
2018 Expenses		224,200			124,900

What is consolidated net income for 2018?

• A. $120,500.

• B.$122,370.

• C.$123,900.

• D.$152,200.

Answer 1

Answer: Option (A) $120,500

Consideration transferred by Pride = $456,000

Add: Non controlling interest fair value = 50,600

Star acquisition-date fair value (50,600 / 10%) = $506,600
Less: Star book value = 354,200
Excess fair over book value = $152,400

Amortization
to equipment (8 year remaining life) $ 51,200 = $6,400 (51,200/8)
to customer list (4 year remaining life)(152,400 - 51,200) $100,600 = 25,300 (101,200 / 4)
Total Amortization = $31,700

Net income:
Combined revenues = $501,300 (318,800 + 182,500)
Less: Combined expenses = $349,100 (224,200 + 124,900)
Less: Excess fair value amortization = 31,700
Consolidated net income for 2018 = $120,500