Question

On January 1, 2017, Chamberlain Corporation pays $388,000 for a 60 percent ownership in Nev- ille. Annual excess fair-value amortization of $15,000 results from the acquisition. On December 31, 2018, Neville reports revenues of $400,000 and expenses of $300,000 and Chamberlain reports revenues of $700,000 and expenses of $400,000. The parent figures contain no income from the subsidiary. What is consolidated net income for 2018?

a. $194,000
b. $197,500
c. $203,000
d. $238,000

Answer 1

To calculate the consolidated net income, we combine Chamberlain's net income with its share of Neville's net income, and then subtract the fair-value excess amortization.

Step-by-step explanation:

The consolidated net income for Chamberlain Corporation and its subsidiary, Neville, for the year 2018 is computed by adding Chamberlain's net income to Neville's net income and then subtracting the amortization of the fair-value excess and adjusting for Chamberlain's share of Neville's net income. Chamberlain's net income is calculated as revenues ($700,000) minus expenses ($400,000), which equals $300,000. Neville's net income is calculated as revenues ($400,000) minus expenses ($300,000), which equals $100,000. Chamberlain owns 60% of Neville, so it can claim 60% of Neville's net income, which is $60,000.

The excess fair-value amortization is $15,000 for the year. To find the consolidated net income, we combine Chamberlain's net income with Chamberlain's share of Neville's net income, which is $300,000 + $60,000 = $360,000, and then subtract the amortization, $360,000 - $15,000 = $345,000. The answer appears not to match the provided options and may need to be reviewed for accuracy.