Question
Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits A parent company purchased an 80% controlling interest
Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits
A parent company purchased an 80% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $360,000 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 $216,000 and to an unrecorded patent valued at $144,000. 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 $540,000 of intercompany sales. At the beginning of the current year, there were $37,800 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $58,500 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $81,000 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:
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