Question
2. Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits A parent company purchased a 70% controlling
2.
Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits A parent company purchased a 70% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $875,000 in excess of the subsidiarys Stockholders Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $500,000 and to an unrecorded patent valued at $375,000. The building asset is being depreciated over a 20-year period and the patent is being amortized over an 10-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $1,500,000 of intercompany sales. At the beginning of the current year, there were $100,000 of upstream intercompany profits in the parents inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiarys inventory. During the current year, the subsidiary declared and paid $200,000 of dividends. The parent company uses the equity method of pre-consolidation investment bookkeeping. Each company reports the following income statement for the current year:
Parent | Subsidiary | |
---|---|---|
Income statement: | ||
Sales | $10,000,000 | $2,500,000 |
Cost of goods sold | (6,800,000) | (1,500,000) |
Gross profit | 3,200,000 | 1,000,000 |
Income (loss) from subsidiary | 103,750 | - |
Operating expenses | (1,800,000) | (675,000) |
Net income | $1,503,750 | $325,000 |
a. Compute the Income (loss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement.
Do not use negative signs with your answers below.
Subsidiary's net income | Answer
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AAP | Answer
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Upstream sales | Answer
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Adjusted subsidiary income | Answer
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P % of interest | X | Answer
| % |
Answer
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Downstream sales | Answer
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Income (loss) from subsidiary | Answer
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b. Prepare the consolidated income statement for the current year.
Do not use negative signs with your answers below.
Consolidated Income Statement | |
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Sales | Answer
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Cost of goods sold | Answer
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Gross profit | Answer
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Operating expenses | Answer
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AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income
| Answer
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AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income Correct Mark 1.00 out of 1.00 | Answer
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AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income
| Answer
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