On January 1, 2020, French Company acquired 60 percent of K-Tech Company for $310,500 when K-Tech’s book value was $410,500. The fair value of the newly comprised 40 percent noncontrolling interest was assessed at $207,000. At the acquisition date, K-Tech's trademark (10-year remaining life) was undervalued in its financial records by $80,000. Also, patented technology (5-year remaining life) was undervalued by $27,000.
In 2020, K-Tech reports $26,500 net income and declares no dividends. At the end of 2021, the two companies report the following figures (stockholders’ equity accounts have been omitted):
|Investment income||Not given|
Note: Parentheses indicate a credit balance.
Problem 4-14 (Algo) (LO 4-2)
What is the 2021 consolidated net income before allocation to the controlling and noncontrolling interests?
|Amount in $|
|Net Income of French Company||414,000||(907,000 - 493,000 )|
|Add: Net Income of K-Tech Company||100,000||(407,000 - 307,000 )|
|Less: Trademark Amortization||8,000||(80,000/10 )|
|Less: Patent Amortization||5,400||(27,000/5 )|
|Consolidated net income before allocation to the controlling and noncontrolling interests||500,600|
|Correct answer is option 3 ( i.e. $ 500,600 ).|
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