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 $350.000 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 $200,000 and to an unrecorded patent valued at $150,000. 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 $600,000 of intercompany sales. At the beginning of the current year, there were $40,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $60,000 of downstream intercompany profits in the subsidiary's inventory. 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: Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent $10.000.000 $1.000.000 (6.800.000) (600.000) 3.200.000 400.000 37,125 (1,800,000) (270,000) $1,437,125 $130.000 AAP Upstream sales Adjusted subsidiary income S P% of interest X Subsidiary a. Compute the income (loss) from subsidiary of $37.125 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. D Subsidiary's net income S Downstream sales Income (loss) from subsidiary S 130000 31250 40000 138750 70 % 97125 60000 37125 b. Prepare the consolidated income statement for the current year.
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 $350.000 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 $200,000 and to an unrecorded patent valued at $150,000. 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 $600,000 of intercompany sales. At the beginning of the current year, there were $40,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $60,000 of downstream intercompany profits in the subsidiary's inventory. 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: Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent $10.000.000 $1.000.000 (6.800.000) (600.000) 3.200.000 400.000 37,125 (1,800,000) (270,000) $1,437,125 $130.000 AAP Upstream sales Adjusted subsidiary income S P% of interest X Subsidiary a. Compute the income (loss) from subsidiary of $37.125 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. D Subsidiary's net income S Downstream sales Income (loss) from subsidiary S 130000 31250 40000 138750 70 % 97125 60000 37125 b. Prepare the consolidated income statement for the current year.
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 $350,000 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 $200,000 and to an unrecorded patent valued at $150,000. 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 $600,000 of intercompany sales. At the beginning of the current year, there were $40,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $60,000 of
downstream intercompany profits in the subsidiary's inventory. 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:
Income statement:
Sales
Cost of goods sold
Gross profit
Income (loss) from subsidiary
Operating expenses
Net income
$10,000,000 $1,000,000
(6,800,000) (600,000)
3,200,000 400,000
37,125
(1,800,000) (270,000)
$1,437,125 $130,000
Parent Subsidiary
a. Compute the Income (loss) from subsidiary of $37,125 reported by the parent company in its preconsolidation income statement.
Do not use negative signs with your answers below.
W
Subsidiary's net income
S
AAP
Upstream sales
Adjusted subsidiary income $
P % of interest
X
Downstream sales
Income (loss) from subsidiary $
130000
31250
40000
138750
70 %
97125
60000
37125
b. Prepare the consolidated income statement for the current year.
Do not use negative signs with your answers below.
Transcribed Image Text:Consolidated Income Statement
Sales
Cost of goods sold
Gross profit
Operating expenses
Net income
Net income attributable to noncontrolling interests
Net income attributable to the parent
Please answer all parts of the question.
4
$ 10400000
6820000
3580000
2101250
1478750
$
443625
1035125
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