5 Purple Corporation recently attempted to expand by acquiring ownership in Gree

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5

Purple Corporation recently attempted to expand by acquiring ownership in Green Company. The following ownership structure was reported on December 31, 20X9: Investor Purple Corporation Green Companyy Orange Corporation Green Company Investee Green Companyy Orange Corporation Blue Company Yellow Company Percentage of Ownership Held 70% 10 60 40 The following income from operations (excluding investment income) and dividend payments were reported by the companies during 20X9 Company Purple Corporation Green Companyy Orange Corporation Blue Company Yellow Company Operating Income $90,000 20,000 40,000 100,000 60,000 Dividends Paid $60,000 10,000 30,000 80,000 40,000 Required: Compute the amount reported as consolidated net income for 20X9 Consolidated net income

Explanation / Answer

Purple 70% Green 40% 10% Yellow Orange 60% Blue The earnings of blue company and orange corporation are included under cost method reporting due to 10% ownership level of orange corporation. Net income of Green company : Particulars Amount($) Dividend income from orange Co. 3000 ($30000*10/100) Operating income 20000 Equity method income from yellow Company 24000 ($60000*40/100) Green company net income 47000 Consolidated net income Particulars Amount($) Net income of green 47000 Operating income of purple 90000 Consolidated net income 137000

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