Part A) Assume that a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2012. On the acquisition date, the identifiable net assets of the subsidiary had fair values that approximated their recorded book values except for a patent, which had a fair value of $100,000 and no recorded book value. On the date of acquisition, the patent had 5 years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2013, the subsidiary recorded sales to the parent in the amount of $100,000. On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parents inventory at December 31, 2013. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2013:

	Investor	Investee
Income statement:
Revenues	$2,400,000	$320,000
Equity income	106,000	0
Expenses	(1,600,000)	(160,000)
Net income	$906,000	$160,000
Retained earnings statement:
BOY retained earnings	$752,000	$40,000
Net income	906,000	160,000
Dividends declared	(64,000)	(40,000)
EOY retained earnings	$1,594,000	$160,000
Balance sheet:
Current assets	$800,000	$100,000
Equity investment	234,000	-
Noncurrent assets	4,000,000	300,000
Total assets	$5,034,000	$400,000
Liabilities	$2,640,000	$160,000
Common stock & APIC	800,000	80,000
Retained earnings	1,594,000	160,000
Total liabilities & stockholders equity	$5,034,000	$400,000

Based on this information, determine the balance for Consolidated Expenses:

A) $1,600,000

B) $1,687,500

C) $1,760,000

D) $1,787,500

Part b)

Assume that on January 1, 2009, a parent company acquired a 90% interest in a subsidiary's voting common stock. On the date of acquisition, the fair value of the subsidiary's net assets equaled their reported book values. On January 1, 2011, the subsidiary purchased a building for $486,000. The building has a useful life of 10 years and is depreciated on a straight-line basis with no salvage value. On January 1, 2013, the subsidiary sold the building to the parent for $420,000. The parent estimated that the building had an 8 year remaining useful life and no salvage value. The parent also uses the straight-line method of amortization. The parent's "stand-alone" income (i.e., net income before recording any adjustments related to pre-consolidation investment accounting) is $500,000. The subsidiary's recorded net income is $115,000.

Intercompany sale of depreciable assets Consolidated net income attributable to the controlling interest:

A) $603,500 B) $607,400 C) $576,200 D) $578,930