Berlin, Inc. holds 100 percent of the common stock of Sea Company, an investment acquired for $520,000. Immediately following the combination, Berlin's net assets have a book value of $900,000 and a fair value of $1,050,000. The book and fair value of Sea's net assets on the date of combination are $350,000 and $425,000, respectively. Immediately following the combination, a consolidated balance sheet is prepared.
-When a parent company uses the equity method to account for investments,the controlling interest in consolidated net income includes all of the following except:
A) The parent's income from its own operations.
B) The parent company's share of income from consolidated subsidiaries.
C) The non-controlling interest's share of income from consolidated subsidiaries.
D) Differential adjustments

Question

Quizplus · Accepted Answer

The controlling interest in consolidated net income includes the parent's income from its own operations and the parent company's share of income from consolidated subsidiaries. Differential adjustments are used to adjust the book value of the subsidiary's net assets to their fair value. However, the non-controlling interest's share of income from consolidated subsidiaries is not included in the controlling interest in consolidated net income. It is reported separately as a component of comprehensive income.