On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Bluegrass' assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30% of the total book value of Bluegrass. The stockholders' equity accounts of the two companies at the acquisition date are as follows:
Noncontrolling interest was assigned income of $15,000 in Kentucky's consolidated income statement for 20X2.
-Based on the preceding information,what will be the amount of net income reported by Bluegrass Corporation in 20X2?
A) $45,000
B) $50,000
C) $75,000
D) $105,000

Question

On January 2, 20X2, Kentucky Company acquired 70% of Bluegrass Corporation's common stock for $420,000 cash. At the acquisition date, the book values and fair values of Bluegrass' assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30% of the total book value of Bluegrass. The stockholders' equity accounts of the two companies at the acquisition date are as follows:
  Noncontrolling interest was assigned income of $15,000 in Kentucky's consolidated income statement for 20X2.
-Based on the preceding information,what will be the amount of net income reported by Bluegrass Corporation in 20X2?
A) $45,000 
B) $50,000 
C) $75,000 
D) $105,000

Quizplus · Accepted Answer

Since Kentucky Company acquired 70% of Bluegrass Corporation's common stock, it means that Kentucky Company has a controlling interest in Bluegrass Corporation. Therefore, Bluegrass Corporation's net income will be consolidated with Kentucky Company's financial statements.
Kentucky Company assigned $15,000 of the consolidated net income to the noncontrolling interest, which means that the consolidated net income is $50,000 ($15,000/0.3).
Therefore, the net income reported by Bluegrass Corporation in 20X2 will be $50,000.

On January 2, 20X2, Kentucky Company Acquired 70% of Bluegrass