Use the Following Information for Questions

question 56

Multiple Choice

Use the following information for questions
On January 1, 2011, Global Inc.acquired 100% of National Co.'s voting shares for $900,000.The fair market value of National's net assets was $825,000 which equaled their book value.During 2011, National earned $275,000 and paid out cash dividends of $125,000.Goodwill resulting from the acquisition was reviewed by management who determined that no impairment in value had occurred.Global earned net income, excluding National, of $1,200,000 and paid dividends of $200,000.
-The consolidated net income for the year would be:

• A)$1,200,000
• B)$1,350,000
• C)$1,400,000
• D)$1,475,000

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Definitions:

Preexisting Duty Rule

A legal principle stating that an existing contractual obligation cannot serve as consideration for a new contract.

Bilateral Contract

A bilateral contract is a mutually binding agreement in which each party makes a promise to the other, such as a promise to perform a service in exchange for payment.

Illusory Promise

Describes a statement or agreement that appears to be a promise but is too vague or has terms that allow the promisor to avoid any real obligation.

Consideration

Something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.