Preparing a consolidated income statement-Equity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits 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 $700,000 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 $400,000 and to an unrecorded patent valued at $300,000. 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 $1,200,000 of intercompany sales. At the beginning of the current year, there were $80,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $120,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $160,000 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: Subsidiary Parent Income statement: Sales $10.000.000 $2.000.000 Cost of goods sold (6,800,000) (1.200,000) Gross profit 3,200,000 800,000 Income (loss) from subsidiary 74.250 (1,800,000) $1,474,250 (540.000) $260.000 Operating expenses Net income a. Compute the Income (loss) from subsidiary of $74,250 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income AAP 0 x Upstream sales Adjusted subsidiary income P% of interest 70 v % 0 x Downstream sales 0 x
Preparing a consolidated income statement-Equity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits 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 $700,000 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 $400,000 and to an unrecorded patent valued at $300,000. 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 $1,200,000 of intercompany sales. At the beginning of the current year, there were $80,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $120,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $160,000 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: Subsidiary Parent Income statement: Sales $10.000.000 $2.000.000 Cost of goods sold (6,800,000) (1.200,000) Gross profit 3,200,000 800,000 Income (loss) from subsidiary 74.250 (1,800,000) $1,474,250 (540.000) $260.000 Operating expenses Net income a. Compute the Income (loss) from subsidiary of $74,250 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income AAP 0 x Upstream sales Adjusted subsidiary income P% of interest 70 v % 0 x Downstream sales 0 x
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Preparing a consolidated income statement-Equity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory profits
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 $700,000 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 $400,000 and to an unrecorded patent valued at $300,000. 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 $1,200,000 of intercompany sales. At the
beginning of the current year, there were $80,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $120,000 of downstream intercompany profits in the subsidiary's
inventory. During the current year, the subsidiary declared and paid $160,000 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
$10.000.000 $2.000.000
Cost of goods sold
(6.800.000) (1,200.000)
Gross profit
3,200,000
800,000
Income (loss) from subsidiary
74.250
Operating expenses
(1.800.000) (540.000)
Net income
$1,474,250
$260.000
a. Compute the Income (loss) from subsidiary of $74,250 reported by the parent company in its preconsolidation income statement.
Do not use negative signs with your answers below.
Subsidiary's net income
AAP
0 x
Upstream sales
Adjusted subsidiary income
P % of interest
70 v %
Downstream sales
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