Consolidated Return Scenario: Company P Purchased an 80% Interest in Company

question 13

Multiple Choice

Consolidated Return Scenario: Company P purchased an 80% interest in Company S on January 1, 20X3, for $800,000. On the purchase date, Company S stockholders' equity was $800,000. Any excess of cost over book value was attributed to a patent with a 10-year remaining life. In 20X3, Company P reported internally generated net income before taxes of $150,000. Company S reported a net income before taxes of $70,000. The firms file a consolidated tax return at a 30% tax rate.
-Refer to the Consolidated Return scenario. The controlling share of consolidated net income is

• A) $14,000
• B) $12,000
• C) $28,000
• D) $36,000

---

Definitions:

Restrictive

A term describing measures or policies that limit or constrain actions, activities, or expansions.

Variable Cost

Costs that change in proportion to the level of output or activity, such as materials and labor directly involved in production.

Firm

A firm is a business organization that produces and sells goods or services in an effort to generate profit.

Shut Down

The temporary or permanent closure of a business operation due to various reasons such as financial losses, market conditions, or legal mandates.