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On January 1, 2014, Smokey acquired 75% of the common stock of Bear and accounts for...

On January 1, 2014, Smokey acquired 75% of the common stock of Bear and accounts for the purchase using the equity method. At that date, the excess of fair value of net identifiable assets over book value was 600,000, all of which was attributed to depreciable assets with a remaining useful life of 10 years. Net income of the Smokey was 500,000 and net income of Bear was 250,000. What was the amount of consolidated net income for the year ending December 31, 2014.

How to get the answer of  547,500

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Answer #1

Consolidated net income for the year ending December 31, 2014 = Net Income of Smoke + {Net income of Bear - Depreciation on excess of fair value}*(1 - % of holding)

= $500,000 + {250000 - 600000/10}*(1-0.75)

= $500,000 + 47.500

= $547,500

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