Question

paiva corporation owns 80% of ackroyd corporation's outstanding common stock and ackroyd owns 80% of the outstanding common stock of bailey corporation. bailey corporation owns 10% of the outstanding common stock of ackroyd corporation. the cost of the investments was equal to book value and there were not fair value/book value differences for the investments. the separate net incomes for the three affiliated companies for the year ended december 31, 2014 (excluding investment income) are as follows: paiva corporation, $100,000, ackroyd corporation, $50,000, and bailey corporation, $30,000. use the conventional approach.symbols used:p

Answer 1

The question involves income consolidation in accounting, but is followed by an unrelated example of present value calculations for share pricing, which does not apply to the original consolidation problem.

Step-by-step explanation:

The student question pertains to the calculation of income for a parent company and its subsidiaries using the conventional approach in accounting. This approach requires understanding the intercompany ownership structure, and the individual net incomes, excluding investment income, of Paiva Corporation, Ackroyd Corporation, and Bailey Corporation. To calculate consolidated net income, one must eliminate any intercompany profits and recognize income only to the extent of the ownership percentages. The provided details on separate company incomes and ownership percentages help in working out the consolidation calculations.

However, the example provided in the question about present value (PDV) calculations and pricing shares based on profits does not seem to align with the initial income consolidation question. Such PDV calculations are used to determine what a future amount is worth in present terms, which is a different concept from intercompany profit consolidation. The example mistakenly uses an inappropriate context that calculates the price per share based on total profits, involving present value concepts and a given interest rate, which do not correspond to the initial consolidation accounting question.