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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 $486,000 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 $270,000 and to an unrecorded Customer List valued at $216,000. 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 $120,000 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:

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A. Starting with the parents current-year pre-consolidation net income of $1,146,000, 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.

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B. Prepare the consolidated income statement for the current year.

Do not use negative signs with your answers below.

image text in transcribed

Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $9,600,000 $1,560,000 (6,720,000) (864,000) 2,880,000 696,000 90,000 0 (1,824,000) (422,400) $1,146,000 $273,600 0 0 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 $ 0 0 0 $ 0 Consolidated Income Statement Sales Cost of goods sold Gross profit Operating expenses 0 0 0 0 0 tA 0

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