Question

Required information

Use the following information to answer questions 14-16

West Company acquired 60 percent of Solar Company for $342,000 when Solar’s book value was $442,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $228,000. Also at the acquisition date, Solar had a trademark (with a 10-year life) that was undervalued in the financial records by $84,000. Also, patented technology (with a 5-year life) was undervalued by $64,000. Two years later, the following figures are reported by these two companies (stockholders’ equity accounts have been omitted):

	West Company Book Value				Solar Company Book Value				Solar Company Fair Value
Current assets	$	644,000			$	324,000			$	344,000
Trademarks		284,000				224,000				304,000
Patented technology		434,000				174,000				174,000
Liabilities		(414,000	)			(144,000	)			(144,000	)
Revenues		(924,000	)			(424,000	)
Expenses		476,000				324,000
Investment income		Not given

Problem 4-14 (LO 4-2)

What is the consolidated net income before allocation to the controlling and noncontrolling interests?

Answer 1

West Company acquired 60 percent of Solar Company.

Net income of West Company = Revenue - Expenses = $924,000 - $476,000 = $448,000

Net Income of Solar Company = Revenue - Expenses = $424,000 - $324,000 = $100,000

Amortization of Solar's trademark = $84,000/10 = $8,400

Amortization of Patented technology = $64,000/5 = $12,800

Consolidated net income before allocation to the controlling and noncontrolling interests = Net income of West Company + Net Income of Solar Company - Amortization of Solar's trademark - Amortization of Patented technology = $448,000 + $100,000 - $8,400 - $12,800 = $526,800

Consolidated net income before allocation to the controlling and noncontrolling interests is $526,800.