Question

On January 1, 2016, Pride Corporation purchased 90 percent of the outstanding voting shares of Star, Inc. for $458,000 cash. The acquisition-date fair value of the noncontrolling interest was $50,900. At January 1, 2016, Star’s net assets had a total carrying amount of $356,300. Equipment (eight-year remaining life) was undervalued on Star’s financial records by $66,400. 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 $58,100 in 2016 and $66,400 in 2017. Each year since the acquisition, Star has declared a $16,600 dividend. At January 1, 2018, Pride’s retained earnings show a $207,500 balance.

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

	Pride			Star
2018 Revenues	$	413,400		$	236,600
2018 Expenses		290,600			161,900

A) What is consolidated net income for 2018?

B) Assuming that Pride, in its internal records, accounts for its investment in Star using the equity method, what amount of retained earnings would Pride report on its January 1, 2018 consolidated balance sheet?

Answer 1

Anawet Consideration transferred by pride = 458,000 non contiolling interest -fair value = 50, 900 star- acquisition-date fair valiere = 458,000 + 50,900 508900 Excess fair over book value = 508900 -- 356,300 = 152600 To customer list (u year remainingsrife) = 15200 -- 663400 =86200 => 66400+ 86200 = 152600 o consolidated net 'income = combined revenues - Combined Expenses - Excey four value amortization = (413,400+236,600)-(298,600+161,9) - 152600 = 650000 - 452500-152600 = 44900

ei consolidachd net incorne To Equipment a you woning bete) = 66,400/8 = 8300 89200 To Cuslomcs list (u year Aremaining life) - sono 21550 =) 8300 +21550 = 29850 'The amount o retained farnings. would pride report on it's January 1, 2018 Consolidated balance she + RE = $ 207,500)