1. Preparing a consolidated income statementEquity method with noncontrolling interest and AAP.

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 $650,000 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 $390,000 and to an unrecorded patent valued at $260,000. The building is being depreciated over a 20-year period and the patent is being amortized over a 10-year period, both on the straight-line basis with no salvage value. During the current year, the subsidiary declared and paid $52,000 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:

a. Compute the Income (loss) from subsidiary of $150,150 reported by the parent company in its pre-consolidation income statement.

b. Prepare the consolidated income statement for the current year.

\begin{tabular}{|c|c|c|} \hline & Parent & Subsidiary \\ \hline \begin{tabular}{l} Income statement: \\ Sales. . . . . . . \\ Cost of goods sold . \end{tabular} & \begin{tabular}{r} $11,700,000 \\ (8,320,000) \\ \end{tabular} & \begin{tabular}{r} $1,560,000 \\ (910,000) \\ \end{tabular} \\ \hline & \begin{tabular}{r} 3,380,000 \\ 150,150 \\ (2,340,000) \\ \end{tabular} & \begin{tabular}{r} 650,000 \\ 0 \\ (390,000) \\ \end{tabular} \\ \hline Net income.. & $1,190,150 & $260,000 \\ \hline \end{tabular}