Meadows Company purchased a 80% interest in Szot Company five years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year:Income Statement MeadowsSzotSales$9,000,000$750,000Cost of goods sold-4,200,000-260,000Gross Profit4,800,000490,000Income (loss) from subsidiary112,000 Operating expenses-2,500,000-350,000Net income$2,412,000$140,000Required:a. Compute the income (loss) from subsidiary of $112,000 reported by the Meadows Company.b. Prepare the consolidated income statement for the current year.

The question is based on the concept of Financial Accounting.

Answered: Meadows Company purchased a 80%…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Meadows Company purchased a 80% interest in Szot Company five years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year:

Income Statement
	Meadows	Szot
Sales	$9,000,000	$750,000
Cost of goods sold	-4,200,000	-260,000
Gross Profit	4,800,000	490,000
Income (loss) from subsidiary	112,000
Operating expenses	-2,500,000	-350,000
Net income	$2,412,000	$140,000

Required:

a. Compute the income (loss) from subsidiary of $112,000 reported by the Meadows Company.
b. Prepare the consolidated income statement for the current year.

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