Question

On January 1, Big Company acquires all of the common stock of Little Company by issuing 400,000 shares of $1 par value stock with a market value of $12 per share. Little reports earnings of $864,000 and pays dividends of $240,000 in the year of acquisition. The amortization of allocations related to the investment was $48,000. Big's net income, not including the investment, was $6,360,000, and it paid dividends of $400,000.On the consolidated financial statements, what amount is reported for Equity in Little Company's Earnings?$1,056,000$864,000$816,000$240,0000

Answer 1

Answer:

$816,000

Explanation:

Little company's income was for 864,000

We also have, amortization related to Little company for 48,000

we will decrease the income from Little company by this amount

giving a net result of 816,000

The dividends do not impact net income.

The Big Company transactions do not impact on the Little company net income unless we are provided otherwise.

We are not given any information of rtansactions intra-entity so we can conclude thats the consolidades earning for Little  Company.