A Corporation Had Net Income of $50,000 in 2012 and $60,000

question 35

Multiple Choice

A Corporation had net income of $50,000 in 2012 and $60,000 in 2013, excluding any income from its investment in B Company. B Company had net income of $30,000 in 2012 and $40,000 in 2013. On January 1, 2013, A Corporation acquired all of the outstanding common shares of B Company for a cash payment of $300,000. Assume that there was no acquisition differential on this business combination. What net income would A Corporation report for 2012 in its comparative consolidated financial statements at the end of 2013?

• A) $30,000.
• B) $50,000.
• C) $80,000.
• D) $100,000.

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Definitions:

Fixed Portion

The part of a cost or expense that remains constant regardless of changes in the level of activity or volume of production.

Variable Selling

Selling expenses that change in proportion to the volume of sales, such as commissions.

High-low Method

An accounting technique used to estimate variable and fixed costs from the highest and lowest levels of activity.

Variable Component

Part of a cost or expense that varies directly with the level of activity, production, or sales.