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 Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $6,000,000 $1,200,000 (4,200,000) (720,000) 1,800,000 480,000 86,450 (1,140,000) (312,000) $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 $ 168,000 ✓ 0x AAP Adjusted subsidiary income s 0 x P% of interest X 65% Income (loss) from subsidiary $ 86,450 ✓ Sales Cost of goods sold Gross profit b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement Operating expenses Net income Net income attributable to noncontrolling interests Net income attributable to the parent $ 7,200,000 0 x 0 x X 726,500 x + 23,275 x + $ 703,225 x

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Chapter1: Financial Statements And Business Decisions
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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. 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
Cost of goods sold
Gross profit
Income (loss) from subsidiary
Operating expenses
Net income
$6,000,000 $1,200,000
(4,200,000) (720,000)
1,800,000 480,000
86,450
(1,140,000) (312,000)
$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
$
168,000
X
AAP
Adjusted subsidiary income
P% of interest
Income (loss) from subsidiary $
$
0 x
0 x
65
86,450
%
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
Net income
Net income attributable to noncontrolling interests
Net income attributable to the parent
$ 7,200,000
0 x
0 x
X
726,500 *
23,275 *
703,225 *
Transcribed Image Text: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 Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income $6,000,000 $1,200,000 (4,200,000) (720,000) 1,800,000 480,000 86,450 (1,140,000) (312,000) $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 $ 168,000 X AAP Adjusted subsidiary income P% of interest Income (loss) from subsidiary $ $ 0 x 0 x 65 86,450 % 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 Net income Net income attributable to noncontrolling interests Net income attributable to the parent $ 7,200,000 0 x 0 x X 726,500 * 23,275 * 703,225 *
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