Question

Carlson, Inc. owns 80 percent of Madrid, Inc. Carlson reports net income for 2018 (without consideration of its investment in Madrid, Inc.) of $1,500,000. For the same year, Madrid reports net income of $705,000. Carlson had bonds payable outstanding on January 1, 2018 with a carrying value of $1,200,000. Madrid acquired the bonds on the open market on January 3, 2018 for $1,090,000. For the year 2018, Carlson reported interest expense on the bonds in the amount of $96,000, while Madrid reported interest income of $94,000 for the same bonds. Assuming there are no excess amortizations or other intra-entity transactions, what is Carlson’s share of consolidated net income?

Answer 1

$2,176,000

Step-by-step explanation:

The computation of the Carlson’s share of consolidated net income is shown below:

= Net income for 2018 + Madrid net income × ownership percentage + income from bond + excess interest

= $1,500,000 + $705,000 × 80% + $110,000 + $2,000

= $1,500,000 + $564,000 + $110,000 +$2,000

= $2,176,000

The income from bond would be

= $1,200,000 - $1,090,000

= $110,000

And, the excess interest would be

= $96,000 - $94,000

= $2,000