Preparing a consolidated income statement$$Cost method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits

A parent company purchased a $60\%$ controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $$280,000$ in excess of the subsidiary$$s Stockholders$$ Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $$180,000$ and to an unrecorded Trademark valued at $$100,000.$ The building asset is being depreciated over a $10-$year period and the Trademark is being amortized over a $5-$year period, both on the straight$-$line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $$500,000$ of intercompany sales. At the beginning of the current year, there were $$50,000$ of upstream intercompany profits in the parent$$s inventory. At the end of the current year, there were $$40,000$ of downstream intercompany profits in the subsidiary$$s inventory. During the current year, the subsidiary declared and paid $$90,000$ of dividends. The parent company uses the cost method of pre$-$consolidation investment bookkeeping. Each company reports the following income statement for the current year:

Parent Subsidiary

Income statement:

Sales $$5,000,000$ $$1,000,000$

Cost of goods sold $(3,400,000)(600,000)$

Gross profit $1,600,000400,000$

Income $($loss$)$ from subsidiary $54,0000$

Operating expenses $(900,000)(270,000)$

Net income $$754,000$ $$130,000$

a$.$ Starting with the parent$$s current$-$year pre$-$consolidation net income of $$754,000,$ compute the amount of current$-$year net income attributable to the parent that will be reported in the consolidated financial statements.

Do not use negative signs with your answers below.

Reconciliation of Cost to Equity Method

Parent's pre$-$consolidation net income Answer

$754000$

Dividend Income Answer

$54000$

P$\%$ x Net income of subsidiary Answer

$78000$

P$\%$ x AAP amortization Answer

$22800$

P$\%$ of Upstream profit Answer

$30000$

Downstream profit Answer

$40000$

Net income attributable to controlling interest Answer

$933200$

b$.$ Prepare the consolidated income statement for the current year.

Do not use negative signs with your answers below.

Consolidated Income Statement

Sales Answer

$5910000$

Cost of goods sold Answer

Gross profit Answer

$0$

Operating expenses Answer

$0$

Answer

Net income

Answer

Answer

Net income attributable to noncontrolling interests

Answer

$0$

Answer

Net income attributable to the parent

Answer

$0$