Question
Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits A parent company purchased a 70% controlling interest
Preparing a consolidated income statementEquity 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 subsidiarys 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 parents inventory. At the end of the current year, there were $120,000 of downstream intercompany profits in the subsidiarys 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:
Parent | Subsidiary | |
---|---|---|
Income statement: | ||
Sales | $10,000,000 | $2,000,000 |
Cost of goods sold | (6,800,000) | (1,200,000) |
Gross profit | 3,200,000 | 800,000 |
Income (loss) from subsidiary | 74,250 | - |
Operating expenses | (1,800,000) | (540,000) |
Net income | $1,474,250 | $260,000 |
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 | Answer | ||
AAP | Answer | ||
Upstream sales | Answer | ||
Adjusted subsidiary income | Answer | ||
P % of interest | X | Answer | % |
Answer | |||
Downstream sales | Answer | ||
Income (loss) from subsidiary | Answer |
b. Prepare the consolidated income statement for the current year.
Do not use negative signs with your answers below.
Consolidated Income Statement | |
---|---|
Sales | Answer |
Cost of goods sold | Answer |
Gross profit | Answer |
Operating expenses | Answer |
AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income | Answer |
AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income | Answer |
AnswerNet income attributable to noncontrolling interestsNet income attributable to the parentNet income | Answer |
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