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Preparing a consolidated income statementCost method with noncontrolling interest and AAP A parent company purchased a 75% controlling interest in its subsidiary several years ago.

Preparing a consolidated income statementCost method with noncontrolling interest and AAP

A parent company purchased a 75% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $648,000 in excess of the subsidiarys Stockholders Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $360,000 and to an unrecorded Customer List valued at $288,000. The building asset is being depreciated over a 15-year period and the Customer List is being amortized over a 4-year period, both on the straight-line basis with no salvage value. During the current year, the subsidiary declared and paid $160,000 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 $9,600,000 $2,080,000
Cost of goods sold (6,720,000) (1,152,000)
Gross profit 2,880,000 928,000
Income (loss) from subsidiary 120,000 0
Operating expenses (1,824,000) (563,200)
Net income $1,176,000 $364,800

a. Starting with the parents current-year pre-consolidation net income of $1,176,000, 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

Dividend Income

P% x Net income of subsidiary

P% x AAP amortization

Net income attributable to controlling interest

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

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