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 $250,000 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 $150,000 and to an unrecorded patent valued at $100,000. 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 $40,000 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 | $600,000 |
| Cost of goods sold | (4,200,000) | (360,000) |
| Gross profit | 1,800,000 | 240,000 |
| Income (loss) from subsidiary | 43,225 | – |
| Operating expenses | (1,140,000) | (156,000) |
| Net income | $703,225 | $84,000 |
a. Compute the Income (loss) from subsidiary of $43,225 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 | ||
| Adjusted subsidiary income | $Answer | ||
| P % of interest | X | 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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