Question

# On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star,...

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.

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

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