Kaye Company Acquired 100% of Fiore Company on January 1

question 61

Multiple Choice

Kaye Company acquired 100% of Fiore Company on January 1, 2011. Kaye paid $1,000 excess consideration over book value which is being amortized at $20 per year. Fiore reported net income of $400 in 2011 and paid dividends of $100.
-Assume the equity method is applied. How much will Kaye's income increase or decrease as a result of Fiore's operations?

• A) $400 increase.
• B) $300 increase.
• C) $380 increase.
• D) $280 increase.
• E) $480 increase.

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Definitions:

Inventory Purchase

The acquisition of goods and materials a company intends to sell or use in the production process.

Amount Record

The documentation of the monetary value of transactions or balances.

Settlement Date

The date on which a trade of financial instruments is finalized, with the transfer of securities and funds between parties.

Transaction Date

The date on which an actual trade or financial deal occurs.