Jans Inc Acquired All of the Outstanding Common Stock of Tysk

question 4

Multiple Choice

Jans Inc. acquired all of the outstanding common stock of Tysk Corp. on January 1, 2011, for $372,000. Equipment with a ten-year life was undervalued on Tysk's financial records by $46,000. Tysk also owned an unrecorded customer list with an assessed fair value of $67,000 and an estimated remaining life of five years. Tysk earned reported net income of $180,000 in 2011 and $216,000 in 2012. Dividends of $70,000 were paid in each of these two years. Selected account balances as of December 31, 2013, for the two companies follow. $$\begin{array} { l r r } & { \text { Jans } } & { \text { Tysk } } \\\text { Revenues } & \$ 1,080,000 & \$ 840,000 \\\text { Expenses } & 480,000 & 600,000 \\\text { Investment income } & \text { Not given } & 0 \\\text { Retained earnings, 1/1/13 } & 840,000 & 600,000 \\\text { Dividends paid } & 132,000 & 70,000\end{array}$$ If the partial equity method had been applied, what was 2013 consolidated net income?

• A)$840,000.
• B)$768,400.
• C)$822,000.
• D)$240,000.
• E)$600,000.

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Definitions:

Absorption Costing

A system for determining product costs that encompasses all manufacturing expenses, including direct materials, direct labor, and overheads, regardless of them being fixed or variable.

Ending Inventory

The value of goods available for sale at the end of an accounting period.

Variable Overhead Cost

Overhead costs that vary with the level of production or business activity, such as utilities or materials used in production.

Absorption Costing

A method of cost accounting that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.