22data-uuid-87974accbdd8482abe... Problem 7-3 LO1 The comparative consolidated income statements of a parent and its 75%-owned subsidiary were prepared incorrectly as at December 31 and are shown in the following table. The following items were overlooked when the statements were prepared: The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent immediately leased the equipment back to the subsidiary at an annual rental of $42,000. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale. The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent Both gains were taxed at a rate of 40% CONSOLIDATED INCOME STATEMENTS Sear Hear 6 Miscellaneous revenues $875.000 $ 950.000 Gain on sale of assets 28.000 59.500 Rental revenue 10.500 42,000 913.500 1.051.500 Miscellaneous expenses 419.800 497,340 Rental expense 70.200 71,800 Depreciation expense 100,000 98.200 Income tax expense 93,500 107.000 Non-controlling interest 45.000 8.160 CONSOLIDATED INCOME STATEMENTS Year Year 6 Miscellaneous revenues S875,000 $ 950.000 Gain on sale of assets 28.000 59,500 Rental revenue 10.500 42.000 913.500 1.051.500 Miscellaneous expenses 419.800 497,340 70.200 71,800 Rental expense Depreciation expense 100,000 98.200 Income tax expense 9.3.500 107.000 45,000 8.160 Non controlling interest 728.500 782.500 $185.000 $ 269.000 Net income Page 1 Required Prepare correct consolidated income statements for Years 5 and 6. The comparative consolidated income statements of a parent and its 75% owned subsidiary were prepared incorrectly as at December 31 and are shown in the table given below. The following items were overlooked when the statements were prepared The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent immediately leased the equipment back to the subsidiary at an annual rental of $20,400. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale, The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent. . Both gains were taxed at a rate of 40% CONSOLIDATED INCOME STATEMENTS Year 5 Miscellaneous revenues $ 785,000 Gain on sale of assets 13,600 Rental revenue 5.100 803700 Miscellaneous expenses 405,400 Rental expense 57,600 Depreciation expense 82,000 Income tax expense 84,500 Non-controlling interest 36.000 665,500 Net income $ 138,200 Year 6 $ 860,000 46,909 20,400 927,300 493,740 66,400 85,600 98,000 749,740 $ 177,560 Required: Prepare correct consolidated income statements for Years 5 and 6. (Input all values as positive numbers. Leave no cells blank - be certain to enter zero wherever required. Omit $ sign in your response.)
