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:

Parent Subsidiary Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $8,280,000 $1,170,000 (5,400,000) (540,000) 2,880,000 630,000 133,740 (2,160,000) (396,000) $853,740 $234,000 a. Compute the Income (loss) from subsidiary of $133,740 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ 234,000 AAP 31,500 Upstream sales 37,800 Adjusted subsidiary income $ 240,300 P% of interest 80 % 192,240 Downstream sales 58,500 Income (oss) from subsidiary $ 133,740 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 Net income Net income attributable to noncontrolling interests Net income attributable to the parent 8,910,000 5,940,000 3,510,000 x 2,587,500 922,500 x 48,060 0x $