Question

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):

	French Company Carrying Amounts				K-Tech Company Carrying Amounts				K-Tech Company Fair Values
Current assets	$	627,000			$	307,000			$	327,000
Trademarks		267,000				207,000				287,000
Patented technology		417,000				157,000				184,000
Liabilities		(397,000	)			(127,000	)			(127,000	)
Revenues		(907,000	)			(407,000	)
Expenses		493,000				307,000
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?

Multiple Choice

• $514,000.

• $414,000.

• $500,600.

• $505,960

Answer 1

		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 )
	Total	514,000
	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 ).