[startupcfo]

MCA 733, I feel like the answer I gave (marked correct) does not match the second half of the rationale. Aren’t they saying that the correct answer is $16,000?

On January 1, 20X1, Dallas, Inc., purchased 80% of Style, Inc.’s, outstanding common stock for $120,000. On that date, the carrying amounts of Style’s assets and liabilities approximated their fair values. During 20X1, Style paid $5,000 cash dividends to its stockholders. Summarized balance sheet information for the two companies follows:

Dallas Style
12/31/X1 12/31/X1 01/01/X1
——– ——– ——–
Investment in Style (equity method) $132,000
Other assets 138,000 $115,000 $100,000
Common stock 50,000 20,000 20,000
Additional paid-in capital 80,250 44,000 44,000
Retained earnings 139,750 51,000 36,000
The combination is accounted for as an acquisition (initiated in a fiscal year beginning after December 15, 2008). What amount should Dallas include from Style as part of consolidated net income in its 20X1 income statement?

A.
$12,000

B.
$15,000

C.
$16,000

Correct D.
$20,000

Style, Inc., the subsidiary, reported 20X1 earnings of $20,000 (see below):

Retained Earnings (01/01/X1) $36,000
Plus 20X1 Income ?
Less 20X1 Dividends (5,000)
——–
Retained Earnings (12/31/X1) $51,000
========
Dallas, Inc., the parent, includes 100% of Style’s earnings: $20,000. The noncontrolling interest in the subsidiary net income $4,000 (20% of $20,000) is then subtracted from the combined entity’s consolidated net income to derive the parent’s interest in consolidated net income.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[startupcfo]

That formatting didn't come out right. Long story short is you a Parents own 80% of a subsidiary with 20K net income. The question is what amount of net income the Parent company should include. I said $20K but the rationale appears to say $16K (80% of $20,000) even though it's marked correct.

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Christopher]

For consolidation purposes, you'd include the whole $20,000. But the parent's interest in the sub's net income is $16,000, which would be disclosed in the balance sheet in S/E..I think haha…I had to read it over a couple of times myself.

[fragchild]

The question asked about net income and not net income attributable to stockholders (i.e. parents interest). Therefore the $20k is correct. However, if we wanted to know the net income attributable to stockholders, we deduct the net income (or add the loss) attributable to non controlling interest.

Take a look at General Motors 2015 consolidated income statement. Under the Net income, theres another line which says Net (Income) loss attributable to noncontrolling interest. Thats where the $4k would go and is deducted from net Income to give you net income attributable to stockholders.

[Author]

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