Question

Problem b-TT (LU 6-3) Dane, Inc., owns Carlton Corporation. For the current year, Dane reports net income (without consideration of its investment in Carlton) of $255,000 and the subsidiary reports $102,750. The parent had a bond payable outstanding on January 1, with a carrying amount of $237,000. The subsidiary acquired the bond on that date for $219,500. During the current year, Dane reported interest expense of $17,850 while Carlton reported interest income of $16,950, both related to the intra-entity bond payable. What is consolidated net income? Multiple Choice $374,350. $341,150. o oo $376,150. $339,350.

Answer 1

1. Compute consolidated net income as follows:

Particulars Amount Net Income of Dane $255,000 $102,750 $17,850 Add: Net Income of Carlton (subsidiary) Add: Interest expense of Dane on bonds payable to Carlton Less: Interest income of Carlton on bonds issued by Dane Add: Gain on bonds payable ($237,000 - $219,500) $16,950 $17,500 Consolidated Net Income $376,150

Hence, the consolidated net income is $376,150.

2. Compute the net cash flow from operating activities as follows:

Particulars Amount Net Income $53,500 Add: Depreciation on Building $14,300 Add: Amortization of Trademark $24,000 Less: Increase in A/R -$21,400 -$47,000 Less: Increase in Inventory Add: Increase in A/P Net Cash flow from Operating Activities $17,000 $40,400

Hence, net cash inflow from operating activities is $40,400.