Chapter 1 Test Bank



Chapter 9 Test Bank

INDIRECT AND MUTUAL HOLDINGS

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|Multiple Choice Questions |

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|1. | |Pallet Corporation owns 80% of Adelt Corporation and Adelt owns 60% of Bajo Inc. Which of the following is correct? |

| | | | |

| | |a. |Bajo should not be consolidated because minority interests hold 52%. |

| | |b. |Bajo should be consolidated because the 60% of Bajo stock is held in the affiliate structure. |

| | |c. |Pallet has 8% indirect ownership of Bajo. |

| | |d. |Pallet has 80% indirect ownership of Bajo. |

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|2. | |Page Corporation acquired a 60% interest in Ace Corporation at a price $40,000 in excess of book value and fair value on |

| | |January 1, 2005. On the same date, Ace acquired a 70% interest in Bader Corporation at a price $30,000 in excess of book value|

| | |and fair value. The excess purchase cost paid by Page and Ace was attributed to goodwill. Separate incomes (excluding |

| | |investment income) for the three affiliates for 2005 are as follows: Page, $500,000, Ace, $300,000, and Bader, $400,000. |

| | | |

| | |Page’s net income for 2005 is |

| | | | |

| | |a. |$808,000. |

| | |b. |$848,000. |

| | |c. |$920,000. |

| | |d. |$960,000. |

|Use the following information in answering questions 3, 4, and 5. |

| |

|Paint Corporation owns 82% of Achille corporation and Achille Corporation owns 80% of Badrack Corporation. For the current year, the |

|separate incomes of Paint, Achille, and Badrack are $120,000, $100,000, and $50,000, respectively. |

| |

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|3. | |Noncontrolling interest expense from Badrack is |

| | | | |

| | |a. |$9,000. |

| | |b. |$10,000. |

| | |c. |$20,000. |

| | |d. |$40,000. |

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|4. | |Noncontrolling interest from Achille is |

| | | | |

| | |a. |$18,000. |

| | |b. |$25,200. |

| | |c. |$36,200. |

| | |d. |$72,000. |

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|5. | |Consolidated net income for Paint Corporation and Subsidiaries can be determined by the equation: |

| | | | |

| | |a. |$234,000. |

| | |b. |$244,800. |

| | |c. |$260,000. |

| | |d. |$270,000. |

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|6. | |Pabari Corporation owns an 80% interest in Alders Corporation and Alders owns a 60% interest in Babao Corporation. Both |

| | |interests were acquired at book value equal to fair value. During 2005, Alders sells land to Babao at a profit of $12,000. |

| | |Babao still holds the land at December 31, 2005. Profits and (losses) of the three companies for 2005 are: |

| | | |

| | | Pabari Corporation $180,000 |

| | | Alders Corporation 72,000 |

| | | Babao Corporation (30,000) |

| | | |

| | |Consolidated net income and noncontrolling interest (loss), respectively, for 2005 are |

| | |a. |$211,200 and ($1,200). |

| | |b. |$211,200 and ($3,600). |

| | |c. |$213,600 and ($1,200). |

| | |d. |$213,600 and ($3,600). |

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|7. | |Pablo Corporation acquired 60% of Abagia Corporation on January 1, 2004, at a cost of $20,000 in excess of book value. Also, |

| | |on July 1, 2004, Pablo acquired 60% of Babin Corporation at book value. On January 1, 2005, Abagia acquired a 20% interest in |

| | |Babin at a cost of $10,000 in excess of book value. The excess purchase costs paid by Pablo and Abagia were attributed to |

| | |goodwill. |

| | | |

| | |On July 1, 2005, Pablo sold land with a book value of $20,000 to Abagia for $40,000. The $20,000 unrealized gain is included |

| | |in Pablo’s separate income. Separate incomes for the affiliated companies (excluding investment income) for 2005 are: |

| | | | |

| | | | Pablo $250,000 |

| | | | Abagia 70,000 |

| | | | Babin 100,000 |

| | | | |

| | | |Consolidated net income for the three affiliates is |

| | | | |

| | |a. |$304,000. |

| | |b. |$324,000. |

| | |c. |$344,000. |

| | |d. |$364,000. |

|Use the following information for Questions 8, and 9. |

| |

|Paisley Corporation owns 90% of Ackers Company. Akers Company owns 60% of Baglin. Paisley’s separate income for the current year is |

|$540,000. Akers’s separate income is $240,000. Baglin’s separate income is $150,000. |

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|8. | |The formula for the consolidated noncontrolling interest is calculated as |

| | | |

| | |a. | 10% X $240,000. |

| | |b. |(10% X $240,000) + (6% X $150,000). |

| | |c. |(10% X $240,000) + (40% X $150,000). |

| | |d. |(10% X $240,000) + (46% X $150,000). |

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|9. | |The formula for consolidated net income is calculated as |

| | | | |

| | |b. |$930,000 – ($240,000 X 10%) – ($150,000 X 40%) |

| | |c. |$930,000 – ($240,000 X 10%) – ($150,000 X 46%) |

| | |d. |$930,000 – ($240,000 X 10%) – ($150,000 X 40%) |

| | | |– ($150,000 X 10% X 50%) |

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|10. | |Paglia Corporation owns 80% of Aburn Corporation and has separate income of $200,000 for 2005. Aburn Corporation has separate |

| | |income of $100,000 and owns 70% of the outstanding stock of Badley Corporation. Badley Corporation has separate income of |

| | |$80,000. The correct amount of consolidated net income is |

| | | |

| | |a. |$324,800. |

| | |b. |$328,800. |

| | |c. |$344,800. |

| | |d. |$344,800. |

|Use the following information for Questions 11, 12, and 13. |

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|Pace Corporation owns 70% of Abaza Corporation and 60% of Babon Corporation. Abaza Corporation owns 20% of Babon Corporation. Pace’s |

|investment in Abaza was consummated in one transaction at a purchase price $20,000 in excess of the book value. Pace’s purchase of Babon |

|was made in one transaction at a price $30,000 above book value. Abaza’s investment in Babon was completed in one transaction at a purchase|

|price $10,000 in excess of the book value. The purchase price differential for all three investments was attributable to goodwill. Pace’s |

|separate income for the current year is $100,000. Abaza’s separate income is $190,000, which includes a $10,000 unrealized loss on the sale|

|of land to Pace. Babon’s separate income is $150,000. |

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|11. | |The amount of consolidated net income for Pace Corporation and Abaza for the current year is |

| | | | |

| | |b. |$348,400. |

| | |c. |$351,000. |

| | |d. |$355,000. |

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|12. | |The amount of noncontrolling interest expense for the current year is |

| | | | |

| | |b. |$85,000. |

| | |c. |$95,000. |

| | |d. |$99,000. |

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|13. | |The amount of goodwill in Pace’s consolidated balance sheet is |

| | | | |

| | |b. |$52,000. |

| | |c. |$58,000. |

| | |d. |$60,000. |

|Use the following information for Questions 14 through 18. |

| |

|Pahm Corporation owns 80% of the outstanding voting common stock of Abussi Corporation, which was purchased for $60,000 over Abussi’s book |

|value. The excess purchase price was attributable to goodwill. Abussi Corporation owns 60% of the outstanding common stock of Badock |

|Corporation, which was purchased at book value. The separate incomes of Pahm, Abussi, and Badock for the year are $200,000, $240,000, and |

|$260,000, respectively. |

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|14. | |Consolidated net income for the current year is |

| | | | |

| | |b. |$516,200. |

| | |c. |$545,200. |

| | |d. |$557,200. |

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|15. | |The amount of income for the current year assigned to the minority shareholders of Badock Corporation is |

| | | | |

| | |b. |$104,000. |

| | |c. |$120,000. |

| | |d. |$140,000. |

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|16. | |The amount of income for the current year assigned to the minority shareholders of Abussi Corporation is |

| | | | |

| | |b. |$53,200. |

| | |c. |$74,000. |

| | |d. |$79,200. |

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|17. | |The amount of income assigned to the noncontrolling interest in the current year’s consolidated income statement is |

| | | | |

| | |b. |$154,800. |

| | |c. |$183,200. |

| | |d. |$195,200. |

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|18. | |The net income recorded on the books of Pahm Corporation for the current year is |

| | | | |

| | |b. |$516,800. |

| | |c. |$545,200. |

| | |d. |$557,200. |

|Use the following information for Questions 19 and 20. |

| | | |

|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 separate incomes for the three |

|affiliated companies for the year ended December 31, 2005 (excluding investment income) are as follows: Paiva Corporation, $100,000, |

|Ackroyd Corporation, $50,000, and Bailey Corporation, $30,000. |

| |

| | |Notations for question 19 are: |

| | |P = Income of Paiva on a consolidated basis |

| | |A = Income of Ackroyd on a consolidated basis |

| | |B = Income of Bailey on a consolidated basis |

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|19. | |The equation, in a set of simultaneous equations, that computes Paiva Corporation is |

| | | | |

| | |a. |P = $50,000 + .8B. |

| | |b. |P = $30,000 + .2A. |

| | |c. |P = $100,000 + .2A. |

| | |d. |P = $100,000 + .8A. |

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|20. | |Ackroyd’s noncontrolling interest in the total consolidated income for 2005 is |

| | | | | | | | |

| | |a. |$ 7,609. |

| | |b. |$ 8,044. |

| | |c. |$15,652. |

| | |d. |$23,696. |

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Exercise 1

|Paice Corporation owns 80% of the voting common stock of Accardi Corporation and 60% of the voting common stock of Badger Corporation. |

|Accardi owns 20% of the voting common stock of Badger. There are no cost-book differentials to consider. The separate incomes of these |

|affiliated companies for 2005 are: |

| |

| Paice $300,000 |

| Accardi 160,000 |

| Badger 120,000 |

| |

|Required: |

| |

|Calculate consolidated net income for Paice Corporation and Subsidiaries for 2005. |

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Exercise 2

|Pacini Corporation owns an 80% interest in Abdoo Corporation, acquired on January 1, 2004 for $700,000 when Abdoo’s stockholders’ equity |

|consisted of $600,000 of Capital Stock and $200,000 of Retained Earnings. |

| |

|Abdoo Corporation acquired a 60% interest in Bach Corporation on July 1, 2004 for $180,000 when Bach had Capital Stock of $200,000 and |

|Retained Earnings of $50,000. On January 1, 2005, Abdoo acquired a 70% interest in Cabo Corporation for $270,000 when Cabo had Capital |

|Stock of $250,000 and Retained Earnings of $100,000. |

| |

|No change in outstanding stock of any of the affiliated companies has occurred since the investments were made. All cost-book differentials|

|are goodwill. The stockholders’ equity section of the separate balance sheets of Abdoo, Bach, and Cabo at December 31, 2005 are as follows:|

| | | |Abdoo | | |Bach | | |Cabo | |

|Capital Stock |$ | |600,000 | |$ |200,000 | |$ |250,000 | |

|Retained Earnings | | |280,000 | | |140,000 | | |130,000 | |

|Total stockholders’ equity |$ | |880,000 | |$ |340,000 | |$ |380,000 | |

| |

|Required: |

| | |

|1. |Compute the amount at which goodwill should be shown in the consolidated balance sheet of Pacini Corporation and Subsidiaries at|

| |December 31, 2005. |

| | |

|2. |Pacini and Abdoo have applied the equity method correctly. Determine the balances of the three investment accounts at December |

| |31, 2005. |

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Exercise 3

|Paik Corporation owns 80% of Acdol Corporation and 60% of Ben Corporation. Acdol Corporation owns 10% of Ben Corporation. All subsidiary |

|investments were acquired at book value equal to fair value. Separate incomes (excluding investment income) of the affiliated companies for|

|2005 are: |

| |

|Paik: |$600,000 which includes $60,000 unrealized losses on inventory items sold to Ben |

| | |

|Acdol: |$360,000 |

| | |

|Ben: |$340,000 which includes $100,000 unrealized profit on land sold to Acdol |

| | |

|Required: |

| |

|Determine consolidated net income and noncontrolling interest expense for Paik Corporation and Subsidiaries for 2005. |

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Exercise 4

|Packer Corporation owns 100% of Abel Corporation, Abel Corporation owns 95% of Bacon Corporation and Bacon Corporation owns 80% of Cab |

|Corporation. The separate incomes of Packer, Abel, Bacon, and Cab are $300,000, $100,000, $200,000, and $300,000, respectively. All of the |

|investments were made at times when the investee’s book values were equal to their fair values. |

| |

|Required: |

| |

|Determine the consolidated net income and noncontrolling interest expense for Packer Corporation and Subsidiaries for the current year. |

| |

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Exercise 5

|On January 1, 2005 Paki Inc. bought 75% interest in Adam Corporation. At the time of purchase, Adam owned 80% of Baird Company and 10% of |

|Castle Corporation. In all acquisitions the book value equals the fair value. Separate earnings for the three affiliates for 2005 are as |

|follows: |

| | | |Separate Earnings | | |Dividends | |

|Paki Company | |$ |$400,000 | | |$150,000 | |

|Adam Inc | | |(50,000 |) | |90,000 | |

|Baird Company | | |100,000 | | |35,000 | |

|Castle Company | | |225,000 | | |80,000 | |

| | | | | | | | |

| | | | | | | | |

|Required: |

| |

|Compute consolidated net income and noncontrolling interest expense for Paki for 2005. |

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Exercise 6

|Paco Corporation owns 90% of Aber Corporation, Aber Corporation owns 85% of Back Corporation, and Back Corporation owns 5% of Aber |

|Corporation. The separate incomes (excluding investment income), of Paco, Aber, and Back are $100,000, $40,000, and $55,000, respectively. |

|Required: |

| |

|Calculate revised net incomes for Paco, Aber, and Back by including the correct amount of investment income for each company. Use the |

|conventional method for your solution. |

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Exercise 7

|Paine Corporation owns 90% of Achan Corporation, Achan Corporation owns 85% of Badge Corporation, and Badge Corporation owns 5% of Achan |

|Corporation. The separate incomes (excluding investment income), of Paine, Achan, and Badge are $400,000, $160,000, and $220,000, |

|respectively. |

|Required: |

| |

|Calculate the consolidated net income for Paine Corporation and its subsidiaries, Achan, and Badge. Use the treasury stock method for your |

|solution. |

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Exercise 8

|Separate earnings and investment percentages for the three affiliates for 2005 are as follows: |

| |

| |

|Compute consolidated net income for Palace for 2005. |

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Exercise 9

|Padhy Corporation owns 80% of Abrams Corporation, Abrams Corporation owns 60% of Bacud Corporation, and Bacud Corporation owns 10% of Padhy|

|Corporation. The separate incomes (excluding investment income), of Padhy, Abrams, and Bacud are $300,000, $100,000, and $80,000, |

|respectively. |

|Required: |

| |

|Calculate the consolidated net income for Padhy Corporation and its subsidiaries, Abrams and Bacud. Use the conventional method for your |

|solution. |

LO2

Exercise 10

|Padua Corporation owns 80% of Able Corporation, Able Corporation owns 60% of Baden Corporation, and Baden Corporation owns 10% of Padua |

|Corporation. The separate incomes (excluding investment income), of Padua, Able, and Baden are $300,000, $100,000, and $80,000, |

|respectively. |

|Required: |

| |

|Calculate the consolidated net income for Padua Corporation and its subsidiaries, Able and Baden. Use the treasury stock method for your |

|solution. |

SOLUTIONS

Multiple Choice Questions

|1 |b | |

| | | |

|2 |b | |

| | | |Page | | |Ace | | |Bader | |

|Separate incomes |$ | |500,000 | |$ |300,000 | |$ |400,000 | |

|Allocate 70% of Bader to Ace | | | | | | | | | | |

| | | | | | |280,000 | |( |280,000 |) |

|Allocate 60% of Ace to Page | | |348,000 | |( |348,000 |) | | | |

|Page’s net income |$ | |848,000 | | | | | | | |

|Noncontrolling interest expense | | | | |$ |232,000 | |$ |120,000 | |

| | | | | | | | | | | |

|3 |b | |

| | | |

|From Badrack: .20 x $50,000 = |$ | |10,000 | |

| | | | | |

|4 |b | |

| | | |

|From Achille: (.18)x[$100,000 + (.80)x($50,000)] |$ | |25,200 | |

|5 |a | |

| | | |

| | | | | |

|Noncontrolling interest expense: | | | | |

|From Badrack: .20 x $50,000 = |$ | |10,000 | |

| | | | | |

|From Achille: (.18)x[$100,000 + (.80)x($50,000)] |$ | |25,200 | |

| | | | | |

|Total minority income |$ | |36,200 | |

| | | | | |

|Combined separate incomes |$ | |270,000 | |

|Less: Noncontrolling interest expense | |( |36,200 |) |

|Consolidated net income |$ | |234,800 | |

| | | | | |

|6 |d |Noncontrolling interest net loss: $8,400 + ($12,000) = ($3,600) |

| | | |Pabari | | |Alders | | |Babao | |

|Separate incomes |$ | |180,000 | |$ |72,000 | |$( |30,000 |) |

|Less: Unrealized profit on land | | | | | | | | | | |

| | | | | |( |12,000 |) | | | |

|Subtotal |$ | |180,000 | |$ |60,000 | |$( |30,000 |) |

|Allocate Babao’s net loss to Alders ($30,000) x 60% | | | | | | | | | | |

| | | | | |( |18,000 |) | |18,000 | |

|Allocate 80% of Alders income to Pabari | | | | | | | | | | |

| | | |33,600 | |( |33,600 |) | | | |

|Consolidated net income |$ | |213,600 | | | | | | | |

|Noncontrolling interest expense | | | | |$ |8,400 | |$( |(12,000 |) |

| | | | | | | | | | | |

|7 |c | |

| | | |Pablo | | |Abagia | | |Babin | |

|Separate incomes |$ | |250,000 | |$ |70,000 | |$ |100,000 | |

|Less: Unrealized profit on land | | | | | | | | | | |

| | |( |20,000 |) | | | | | | |

|Separate realized incomes |$ | |230,000 | |$ |70,000 | |$ |100,000 | |

|Allocate Babin’s income: | | | | | | | | | | |

| 60% to Pablo | | |60,000 | | | | |( |60,000 |) |

| 20% to Abagia | | | | | |20,000 | |( |20,000 |) |

|Allocate Abagia’s net income $90,000 x 60% | | | | | | | | | | |

| | | |54,000 | |( |54,000 |) | | | |

| | | | | | | | | | | |

| | | | | | | | | | | |

|Consolidated net income |$ | |344,000 | | | | | | | |

|Noncontrolling interest expense | | | | |$ |36,000 | |$ |20,000 | |

| | | | | | | | | | | |

|8 |d | |

|9 |c | |

|10 |a | |

| | | |Paglia | | |Aburn | | |Badley | |

|Separate incomes |$ | |200,000 | |$ |100,000 | |$ |80,000 | |

|Allocate Badley’s income: | | | | | | | | | | |

| 70% to Aburn | | | | | |56,000 | |( |56,000 |) |

|Subtotal |$ | |200,000 | |$ |156,000 | |$ |24,000 | |

|Allocate Aburn’s income: | | | | | | | | | | |

|80% to Paglia | | |124,800 | |( |124,800 |) | | | |

|Consolidated net income |$ | |324,800 | | | | | | | |

|Noncontrolling interest expense | | | | |$ |32,200 | |$ |24,000 | |

| | | | | | | | | | | |

|11 |c | |

| | | |

|13 |d | |

|14 |b |$200,000 + (80%)x[$240,000 + (60%)x(260,000)] = $516,200 |

|15 |b |40% x $260,000 = $104,000 |

|16 |d |(20% x $240,000) + (20% x $156,000) = $79,200 |

|17 |c |$79,200 + $104,000 = $183,200 |

| | | |Pahm | | |Abussi | | |Badock | |

|Separate incomes | |$ |200,000 | |$ |240,000 | |$ |260,000 | |

|Allocate Badock’s income: | | | | | | | | | | |

| 60% to Abussi | | | | | |156,000 | |( |156,000 |) |

|Subtotal | |$ |200,000 | |$ |396,000 | |$ |104,000 | |

|Allocate Abussi’s net income to Pahm $396,000 x 80% | | | | | | | | | | |

| | | |316,800 | |( |316,800 |) | | | |

| | | | | | | | | | | |

| | | | | | | | | | | |

|Consolidated net income |$ | |516,800 | | | | | | | |

|Noncontrolling interest expense | | | | |$ |79 ,200 | |$ |104,000 | |

| | | | | | | | | | | |

|18 |b |Pahm’s separate net income is the same as the consolidated net income. |

|19 |d | |

| | | |

|20 |b | |

| | | |

| | |P = $100,000 + .8A |

| | |A = $50,000 + .8B |

| | |B = $30,000 + .1P |

| | | |

| | |Computations: |

| | | |

| | |A = $50,000 + .8 x ($30,000 + .1A) |

| | |A = $50,000 + $24,000 + .08S |

| | |A = $80,435 (rounded) |

| | | |

|Noncontrolling interest expense | | | | |

|Ackroyd: $80,435 x 10% outside interest |$ | |8,044 | |

LO1

Exercise 1

|Paice Corporation and Subsidiaries |

|Income Allocation Schedule |

|For the year 2005 |

| |

| | | |Paice | | |Acc|

| | | | | | |ard|

| | | | | | |i |

|Pacini’s investment in Abdoo: | | | |

|Goodwill at acquisition $700,000 cost – ($800,000 x 80%) book value | | | |

| |$ |60,000 | |

| | | | |

|Abdoo’s investment in Bach: | | | |

|Goodwill at acquisition: $180,000 cost – | | | |

|($250,000 x 60%) book value acquired | |30,000 | |

| | | | |

|Abdoo’s investment in Cabo: | | | |

|Goodwill at acquisition: $270,000 cost – | | | |

|($350,000 x 70%) book value acquired | |25,000 | |

|Total goodwill on December 31, 2005 |$ |115,000 | |

Requirement 2:

| | | |Pacini | | |Abdoo’s books | |

| |

|Castle is not consolidated because the ownership percentage is less than 20% and no evidence of control is given |

| | |Paki | | |Adam | | |Baird | |

|Separate incomes |$ |400,000 | |$ |(50,000 |) |$ |100,000 | |

|Allocate Baird 80% | | | | |80,000 | | |(80,000 |) |

|Subtotal |$ |400,000 | |$ |30,000 | |$ |20,000 | |

|Allocate Adam | |22,500 | |( |22,500 |) | | | |

| | | | | | | | | | |

|Consolidated net | | | | | | | | | |

|income |$ |422,500 | | | | | | | |

|Minority income | | | |$ |7,500 | |$ |20,000 | |

| | | | | | | | | | |

| | | | | | | | | | |

| | | | | |

|Noncontrolling interest in Baird |$ | |20,000 | |

|Noncontrolling interest in Adam | | |7,500 | |

|Noncontrolling interest expense |$ | |27,500 | |

| | | | | |

LO2

Exercise 6

| | |Equations: |

| | |P = Income of Paco on a consolidated basis |

| | |A = Income of Aber on a consolidated basis |

| | |B = Income of Back on a consolidated basis |

| | | |

| | |P = $100,000 + .90A |

| | |A = $ 40,000 + .85B |

| | |B = $ 55,000 + .05A |

| | | |

| | |Computations: |

| | | |

| | |A = $40,000 + (.85)x($55,000 + .05A) |

| | |A = $40,000 + $46,750 + .0425A |

| | |A = $90,601 |

| | | |

| | |B = $55,000 + (.05)x($90,601) |

| | |B = $59,530 |

| | |P = $100,000 + (.9)x($90,601) |

| | |P = $100,000 + $81,541 |

| | |P = $181,541 |

| | | |

LO2

Exercise 7

| | |Equations: |

| | |P = Income of Paine on a consolidated basis |

| | |A = Income of Achan on a consolidated basis |

A = $160,000 + (.85) x ($220,000)

A = $160,000 + $187,000

A = $347,000

P = $400,000 + (90/95) x ($347,000)

P = $400,000 + $328,737

P = $728,737

LO2

Exercise 8

| | |Equations: |

| | |P = Income of Palace on a consolidated basis |

| | |A = Income of Acres on a consolidated basis |

| | |B = Income of Bain on a consolidated basis |

| | | |

| | |P = $450,000 + .8A |

| | |A = $200,000 + .7B |

| | |B = $160,000 + .1A |

| | | |

| | |Computations: |

| | | |

| | |A = $200,000 + (.7)x($160,000 + .1A) |

| | |A = $200,000 + $112,000 + .07A |

| | |A = $335,484 |

| | |P = $450,000 + (.8)x($335,484) |

| | |P = $450,000 + $268,387 |

| | |P = $718,387 |

| | | |

LO2

Exercise 9

| | |Equations: |

| | |P = Income of Padhy on a consolidated basis |

| | |A = Income of Abrams on a consolidated basis |

| | |B = Income of Bacud on a consolidated basis |

| | | |

| | |P = $300,000 + .8A |

| | |A = $100,000 + .6B |

| | |B = $ 80,000 + .1P |

| | | |

| | |Computations: |

| | | |

| | |P = $300,000 + (.8)x($100,000 + .6B) |

| | |P = $300,000 + $80,000 + .48B |

| | |P = $300,000 + $80,000 + (.48)x($80,000 + .1P) |

| | |P = $380,000 + $38,400 + .048P |

| | |P = $439,496 |

| | | |

LO2

Exercise 10

| | |Equations: |

| | |P = Income of Padua on a consolidated basis |

| | |A = Income of Able on a consolidated basis |

A = $100,000 + (.6) x ($80,000)

A = $100,000 + $48,000

A = $148,000

P = $300,000 + (.8) x ($148,000)]

P = $300,000 + $118,400

P = $418,400

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