Question

Femur Co. acquired 70% of the voting common stock of Harbor Corp. on January 1, 2019. During 2019, Harbor had revenues of $2,500,000 and expenses of $2,000,000. The amortization of fair value allocations totaled $60,000 in 2019. Not including its investment in Harbor, Femur Co. had its own revenues of $4,500,000 and expenses of $3,000,000 for the year 2019. What amount would Femur Co. report as consolidated net income for 2019?

Answer 1

Consolidated net income is $1,940,000

Step-by-step explanation:

Harbor revenue $2,500,000

Expenses ($2,000,000)

amortization of fair value ($60,000)

Net income $440,000

Femur revenue $4,500,000

expenses ($3,000,000)

net income $1,500,000

The consolidated net income is the sum of the individual net incomes of the Femur Co and Harbor Co. i.e $1,940,000($1,500,000+$440,000)

The fair value allocation is the extra depreciation charge in the year of the fair value recognition on subsidiary's asset at acquisition date