On January 3, 20X5, Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Stitch's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch. The stockholders' equity accounts of the two companies at the acquisition date are:

 On January 3, 20X5, Pleat Company acquired 80 percent of Stitch Corporation's common stock for $344,000 in cash. At the acquisition date, the book values and fair values of Stitch's assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 20 percent of the total book value of Stitch. The stockholders' equity accounts of the two companies at the acquisition date are:

 
Noncontrolling interest was assigned income of $11,000 in Pleat's consolidated income statement for 20X5.

Based on the preceding information, what is the total stockholders' equity in the consolidated balance sheet as of January 3, 20X5?

Multiple Choice

$1,580,000


$1,064,000


$1,150,000


$1,236,000 Correct

 
Explanation
$1,236,000 is correct. Total stockholders’ equity in the consolidated balance sheet as of January 3, 20X5 consists of the total controlling interest and the noncontrolling interest in the net assets of Stitch Corporation. The calculation is depicted below.

$1,580,000 is incorrect. Consolidation entries are made on the consolidation worksheet to eliminate the common stock, additional paid-in capital and retained earnings of Stick Corporation. Thus, the total stockholders’ equity balances from the two companies cannot be added together.

$1,064,000 is incorrect. The noncontrolling interest in the net assets of Stitch Corporation is added to the total controlling interest to arrive at total stockholders’ equity in the consolidated balance sheet as of January 3, 20X5.

$1,150,000 is incorrect. The noncontrolling interest in the net assets of Stitch Corporation must be included in the consolidated balance sheet. This answer choice only includes the total controlling interest.

Based on the preceding information, what will be the amount of net income reported by Stitch Corporation in 20X5?

Multiple Choice

$44,000


$55,000 Correct

$66,000


$36,000

Explanation
$55,000 is correct. The preceding information says that noncontrolling interest was assigned income of $11,000 in Pleat’s consolidated income statement for 20X5. The income attributable to Pleat Company was eliminated in the consolidation worksheet. Before consolidation, Stitch Corporation reported $55,000 of net income ($11,000 ÷ 20 percent).

$44,000 is incorrect. Pleat Company received 80 percent of Stitch Corporation’s net income during 20X5 ($55,000 × 80 percent = $44,000). However, Pleat Company eliminated all $44,000 in its consolidation entries.