Problem

West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was...

West Company acquired 60 percent of Solar Company for $300,000 when Solar’s book value was $400,000. The newly comprised 40 percent noncontrolling interest had an assessed fair value of $200,000. Also at the acquisition date, Solar had a trademark (with a 10-year life) that was undervalued in the financial records by $60,000. Also, patented technology (with a 5-year life) was undervalued by $40,000. 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

$620,000

$300,000

$320,000

Trademarks

260,000

200,000

280,000

Patented technology

410,000

150,000

150,000

Liabilities

(390,000)

(120,000)

(120,000)

Revenues

(900,000)

(400,000)

 

Expenses

500,000

300,000

 

Investment income

Not given

 

 

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

a. $400,000.

b. $486,000.

c. $491,600.

d. $500,000.

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