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Preparing a consolidated income statement-Equity method with noncontrolling interest and AAP A parent company purchased a 65% controlling interest in its subsidiary several years ago.
Preparing a consolidated income statement-Equity method with noncontrolling interest and AAP A parent company purchased a 65% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $500,000 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 $300,000 and to an unrecorded patent valued at $200,000. The building asset 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 $80,000 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 $6,000,000 $1,200,000 Cost of goods sold (4,200,000) (720,000) Gross profit 1,800,000 480,000 Income (loss) from subsidiary 86,450 Operating expenses (1,140,000) (312,000) Net income $746,450 $168,000 a. Compute the income (loss) from subsidiary of $86,450 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ AAP S Adjusted subsidiary income P% of interest Income (loss) from subsidiary S X 96 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 $ . $
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