PLEASE COMPLETE PART B ENTIRELY. (DO NOT COMPLETE OR SOLVE PART A. IT HAS ALREADY BEEN SOLVED)

Preparing a consolidated income statement-Equity 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 $700,000 in excess of the subsidiary's Stockholders' Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $400,000 and to an unrecorded patent valued at $300,000. The building asset is being depreciated over a 16-year period and the patent is being amortized over an 8-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $1,200,000 of intercompany sales. At the beginning of the current year, there were $80,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $120,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $160,000 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 $2,000,000 Cost of goods sold (6,800,000) (1,200,000) Gross profit 3,200,000 800,000 Income (loss) from subsidiary 74,250 Operating expenses (1,800,000) (540,000) Net income $1,474,250 $260,000 a. Compute the Income (loss) from subsidiary of $74,250 reported by the parent company in its preconsolidation income statement, Do not use negative signs with your answers below. Subsidiary's net income $ 260,000 62,500 Upstream sales 80,000 Adjusted subsidiary income 277,500 P% of interest 70 194,250 Downstream sales 120,000 Income (loss) from subsidiary $ 74,250 X b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement $ Sales Cost of goods sold Gross profit Operating expenses Net income Net income attributable to noncontrolling interests Net income attributable to the parent 8,000,000 x 6,870,000 x 4,000,000 x (2,402,500) * 1,597,500 x 83,250 1,514,250 x $