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Following are separate income statements for Austin, Inc., and its 80 percent owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the
Following are separate income statements for Austin, Inc., and its 80 percent owned subsidiary, Rio Grande Corporation as well as a consolidated statement for the business combination as a whole.
Austin | Rio Grande | Consolidated | ||||||||||
Revenues | $ | (760,000 | ) | $ | (540,000 | ) | $ | (1,300,000 | ) | |||
Cost of goods sold | 420,000 | 320,000 | 740,000 | |||||||||
Operating expenses | 120,000 | 66,000 | 215,000 | |||||||||
Equity in earnings of Rio Grande | (104,000 | ) | ||||||||||
Individual company net income | $ | (324,000 | ) | $ | (154,000 | ) | ||||||
Consolidated net income | $ | (345,000 | ) | |||||||||
Noncontrolling interest in consolidated net income | (21,000 | ) | ||||||||||
Consolidated net income attributable to Austin | $ | (324,000 | ) | |||||||||
Additional Information
- Annual excess fair over book value amortization of $45,000 resulted from the acquisition.
- The parent applies the equity method to this investment.
- Austin has 70,000 shares of common stock and 11,000 shares of preferred stock outstanding. Owners of the preferred stock are paid an annual dividend of $30,000, and each share can be exchanged for three shares of common stock.
- Rio Grande has 32,000 shares of common stock outstanding. The company also has 8,000 stock warrants outstanding. For $15, each warrant can be converted into a share of Rio Grandes common stock. Austin holds half of these warrants. The price of Rio Grandes common stock was $20 per share throughout the year.
- Rio Grande also has convertible bonds, none of which Austin owned. During the current year, total interest expense (net of taxes) was $42,000. These bonds can be exchanged for 10,000 shares of the subsidiarys common stock.
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