Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1, 2014, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000. Assume the fair value and book value of Smackem's net assets were equal on January 1, 2014. Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31, 2014, are shown below. Smackem's separate income statement must have reported net income of
A) $13,750.
B) $14,750.
C) $15,750.
D) $15,250.

Question

Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1, 2014, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000. Assume the fair value and book value of Smackem's net assets were equal on January 1, 2014. Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31, 2014, are shown below.  Smackem's separate income statement must have reported net income of
A) $13,750. 
B) $14,750. 
C) $15,750. 
D) $15,250.

Quizplus · Accepted Answer

The Answer of Pinata Corporation acquired an 80% interest in Smackem Inc. for $130,000 on January 1, 2014, when Smackem had Capital Stock of $125,000 and Retained Earnings of $25,000. Assume the fair value and book value of Smackem's net assets were equal on January 1, 2014. Pinata's separate income statement and a consolidated income statement for Pinata and Subsidiary as of December 31, 2014, are shown below.  Smackem's separate income statement must have reported net income of
A) $13,750. 
B) $14,750. 
C) $15,750. 
D) $15,250.

Pinata Corporation Acquired an 80% Interest in Smackem Inc