Question
Assume an investor acquired 100% of the voting common stock of an investee on January 1, 2012 in a transaction that qualifies as a business
Assume an investor acquired 100% of the voting common stock of an investee on January 1, 2012 in a transaction that qualifies as a business combination. As a result of the acquisition, the investor recognized no goodwill and no bargain purchase gain in the post-acquisition consolidated financial statements (i.e., all of the resulting Acquisition Accounting Premium relates to identifiable net assets). The investor uses the equity method to account for its pre-consolidation investment in the investee. In addition, there are no intercompany transactions between the investor and investee. The following summarized pre-consolidation financial statement information is for the year ending December 31, 2019:
Understanding consolidated balances
What amount of expenses will appear in the consolidated income statement for the year ending December 31, 2019?
$1,800,000
$1,956,000
$1,975,200
$1,965,600
Income Statement Revenues Income from Investee Investor Investee $2,232,000 $307,200 141,600 (1,800,000) (156,000) 573,600 151,200 Expenses Consolidated net income NCI Net income $573,600 $151,200 Statement of Retained Earnings Retained earnings, January 1 Net income $720,000 $36,000 573,600 151,200 (60,000) (36,000) $1,233,600 $151,200 Dividends declared Retained earnings, December 31 Balance Sheet Investment in Investee All other assets $283,200 $0 4,598,400 384,000 $4,881,600 $384,000 Total assets Liabilities Common stock and additional paid-in capital Retained earnings Total liabilities and equity $2,880,000 $128,000 768,000 84,000 1,233,600 151,200 $4,881,600 $384,000
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