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: Subsidiary Parent Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses $10,000,000 $2,000,000 (6,800,000) (1,200,000) 3,200,000 800,000 74,250 (1,800,000) (540,000) $1,474,250 $260,000 Net income 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 AAP Upstream sales Adjusted subsidiary income P % of interest X $ % Downstream sales Income (loss) from subsidiary $ 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 $ Check