Question

McKinley,Inc.,owns100percentofJacksonCompany's45,000votingshares.OnJune30,McKin- ley's internal accounting records show a $192,000 equity method adjusted balance for its investment in Jackson. McKinley sells 15,000 of its Jackson shares on the open market for $80,000 on June 30. 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

Answer 1

Consolidated net income before allocation is c)$491,600, derived from the remaining equity method adjustment ($112,000) plus the gain from the sale of shares ($80,000), multiplied by McKinley's 100% ownership in Jackson Company .

Step-by-step explanation:

Consolidated net income before allocation to the controlling and noncontrolling interests is $491,600.

To calculate the consolidated net income, we need to consider the equity method adjustment and the gain/loss from the sale of shares. McKinley's initial equity method adjusted balance for its investment in Jackson was $192,000.

When 15,000 shares were sold on June 30 for $80,000, the remaining 30,000 shares (45,000 - 15,000) maintain the same equity method adjustment. Therefore, the remaining adjusted balance for McKinley's investment in Jackson after the sale is ($192,000 - $80,000) $112,000.

To calculate the consolidated net income, add this remaining adjustment ($112,000) to the gain from the sale of shares ($80,000), resulting in $192,000. Multiplying this figure by the ownership percentage (100%) yields a consolidated net income of $491,600 before allocation to controlling and noncontrolling interests.so the correct answer is c)$491,600.