Question

On January 1, Big Company acquires all of the common stock of Little Company by issuing 400,000 shares of $1 par value stock with a market value of $12 per share. Little reports earnings of $864,000 and pays dividends of $240,000 in the year of acquisition. The amortization of allocations related to the investment was $48,000. Big's net income, not including the investment, was $6,360,000, and it paid dividends of $400,000.What is the amount of consolidated net income?$6,360,000$7,224,000$6,600,000$7,176,000$6,552,000

Answer 1

$7,176,000

Step-by-step explanation:

We will calculate the sbsidiary net gain and add it to the firm income to get the consolidated net income:

Little income 864,000

amortization on acquisition investment (48,000)

net gain on subsidiary 816,000

Big income 6,360,000

big income + income from subsidiary = 6,360,000 + 816,000 = 7,176,000

This will be the consolidated net income.

The dividends do not impact the net income.