Question

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017,...

1)Presents Inc. acquired all of the outstanding common stock of Santa Co. on January 1, 2017, for $257,000. Annual amortization of $19,000 resulted from this acquisition. Presents reported net income of $70,000 in 2017 and $50,000 in 2018 and paid $22,000 in dividends each year. Santa reported net income of $40,000 in 2017 and $47,000 in 2018 and paid $10,000 in dividends each year. What is the amount of consolidated net income for the year 2018?
A. $0.
B. $70,000.
C. $78,000.
D. $97,000.

2)When consolidating a subsidiary under the equity method, which of the following statements is true with regard to the subsidiary subsequent to the year of acquisition?

A. All net assets are revalued to fair value and must be amortized over their useful lives.
B. Only assets that have excess fair value over book value must be amortized over their useful lives.
C. Only depreciable net assets that have excess fair value over book value must be amortized over their useful lives.
D. All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives.

Homework Answers

Answer #1

1)Consolidate Net Income :Net income of parent +net income of subsiduary- amortisation

              = 50000+47000-19000

              = $ 78000

correct option is "C"

2)correct option is "D"

All depreciable net assets are revalued to fair value at date of acquisition and must be amortized over their useful lives.

On the date of acquisition ,all depreciable asset of subsiduary company are revalued to fair value and that increased amount is depreciated over the useful life .

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