y paid $500,000 for a 100% interest in a subsidiary. At the end of subsidiary reported net income of $40,000 and paid $5,000 in divi- I. A parent compan dends. The price paid reflected understated equipment of $70,000, which will be amortized over 10 years. What would be the subsidiary income reported on the par ent's unconsolidated income statement, and what would the parent's investment balance be at the end of the first year under each of these methods? a. The simple equity method b. The sophisticated equity method c. The cost method 2. What is meant by date alignment? Does it exist on the consolidated worksheet under the following methods, and if not, how is it created prior to elimination of the invest- ment account under each of these methods? a. The simple equity method b. The sophisticated equity method c. The cost method 3. What is the noncontrolling share of consolidated net income? Does it reflect adjust- ments based on fair values at the purchase date? How has it been displayed in income statements in the past, and how should it be displayed? 4. A parent company acquired an 80% interest in a subsidiary on July 1, 2015, The sub- sidiary closed its books on that date. The subsidiary reported net income of $60,000 for 2015, earned evenly during the year. The parent's net income, exclusive of any income of the subsidiary, was $140,000. The fair value of the subsidiary exceeded book value by $100,000. The entire difference was attributed to a patent with a 10-year life a. What is consolidated net income for 2015? b. What is the noncontrolling share of net income for 2015? 5. A parent company acquired an 80% interest in a subsidiary on January 1, 2015, at a price high enough to result in goodwill. Included in the assets of the subsidiary are inventory with a book value of $50,000 and a fair value of $55,000 and equipment ith a book value of $100,000 and a fair value of $160,000. The equipment has a 5-year remaining life. What impact would the inventory and equipment, acquired in the acquisition, have on consolidated net income in 2015 and 2016? 6, You are working on a consolidated trial balance of a parent and an 80% owned sub- sidiary. What components will enter into the total noncontrolling interest, and how will it be displayed in the consolidated balance sheet? It seems as if consolidated net income is always less than the sum of the parent's and subsidiary's separately calculated net incomes. Is it possible that the consolidated net income of the two affiliated companies could actually exceed the sum of their indivi 7. dual net incomes
