Answered: Pride Star 2018 Revenues. 2018 Expenses…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problems 7 and 8 relate to the following:

On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc., for $540,000 cash. The acquisition-date fair value of the noncontrolling interest was $60,000. At January 1, 2016, Star’s net assets had a total carrying amount of $420,000. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $80,000. 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 $70,000 in 2016 and $80,000 in 2017. Each year since the acquisition, Star has declared a $20,000 dividend. At January 1, 2018, Pride’s retained earnings show a $250,000 balance.

Selected account balances for the two companies from their separate operations were as follows

What is consolidated net income for 2018?

a. $194,000

b. $197,500

c. $203,000

d. $238,000

Pride
Star
2018 Revenues.
2018 Expenses
$498,000
$285,000
195,000

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