Pet Corporation owns 90 percent of Sod Corporation’s common stock and Sod owns 15 percent of Pet, both acquired at fair value equal to book value. Separate incomes and dividends of the affiliates for 2011 are as follows:
| Separate Incomes | Dividends |
Pet Corporation | $100,000 | $50,000 |
Sod Corporation | 60,000 | 30,000 |
1. If the treasury stock approach is used, Pet’s income and controlling share of consolidated net income for 2011 will be computed:
a $100,000+ (90% × $60,000)
b $100,000+ (90% × $67,500)
c $100,000+ (90% × $67,500)- (90% × $30,000)
d ($100,000+ $60,000)- (10% × $67,500)
2. If the conventional approach is used, Pet’s income on a consolidated basis is denoted P = $100,000 + 0.9S and Sod’s income on a consolidated basis is denoted S = $60,000 + 0.15P. Given these equations, the controlling share of consolidated net income is equal to:
a P
b 0.85P
c P- 0.1S
d P+ S- 0.15S
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