On June 30, 2006, Purl Corp. issued 150,000 shares of its $20 par common stock for which it received all of Scott Corp.’s common stock. The fair value of the common stock issued is equal to the book value of Scott Corp.’s net assets. Both corporations continued to operate as separate businesses, maintaining accounting records with years ending December 31. Net income from separate company operations and dividends paid were
|
Purl |
Scott |
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|
Net income |
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|
Six months ended 6/30/06 |
$750,000 |
$225,000 |
|
|
Six months ended 12/31/06 |
825,000 |
375,000 |
|
|
Dividends paid |
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|
March 25, 2006 |
950,000 |
— |
|
|
November 15, 2006 |
— |
300,000 |
|
On December 31, 2006, Scott held in its inventory merchandise acquired from Purl on December 1, 2006, for $150,000, which included a $45,000 markup. In the 2006 consolidated income statement, net income should be reported at
- $1,650,000
- $1,905,000
- $1,950,000
- $2,130,000