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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

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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 $1,225,000 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 $700,000 and to an unrecorded patent valued at $525,000. The building asset is being depreciated over a 20-year period and the patent is being amortized over an 10-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $2,100,000 of intercompany sales. At the beginning of the current year, there were $140,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $210,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $280,000 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: Parent Subsidiary Income statement: Sales $10,000,000 $3,500,000 Cost of goods sold (6,800,000) (2,100,000) Gross profit 3,200,000 1,400,000 Income (loss) from subsidiary 145,250 Operating expenses (1,800,000) (945,000) Net income $1,545,250 $455,000 0 a. Compute the income (loss) from subsidiary of $145,250 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 0 0 $ 5 0 0 96 0 0 Downstream sales Income (loss) from subsidiary S 0 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 $ 0 0 0 0 0 0 $ 0

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