The comparative consolidated income statements of a parent and its 75%-owned subsidiary were prepared incorrectly as at December 31 and are shown in the table given below. The following items were overlooked when the statements were prepared: • The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent immediately leased the equipment back to the subsidiary at an annual rental of $30,000. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale. • The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent. Both gains were taxed at a rate of 40%

The comparative consolidated income statements of a parent and its 75%-owned subsidiary were prepared incorrectly as at December 31 and are shown in the table given below. The following items were overlooked when the statements were prepared: • The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent immediately leased the equipment back to the subsidiary at an annual rental of $30,000. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale. • The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent. Both gains were taxed at a rate of 40%

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

Required:
Prepare correct consolidated Income statements for Years 5 and 6. (Input all values as positive numbers. Leave no cells blank - be
certain to enter zero wherever required. Omit $ sign in your response.)
Parent Company
Corrected Consolidated Income Statements
Years 5 and 6
Year 5
$
Miscellaneous revenues
Miscellaneous expense
Rent expense
Depreciation expense
Income tax expense
Consolidated net incone
Attributable to:
Shareholders of Parent
NCI
Year 6
$

The comparative consolidated income statements of a parent and its 75%-owned subsidiary were prepared incorrectly as at December
31 and are shown in the table given below. The following items were overlooked when the statements were prepared:
• The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent
immediately leased the equipment back to the subsidiary at an annual rental of $30,000. This was the only intercompany rent
transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale.
• The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the
subsidiary to the parent.
Both gains were taxed at a rate of 40%.
CONSOLIDATED INCOME STATEMENTS
Year 5.
Year 6
$825,000 5.900,000
Miscellaneous revenues
Gain on sale of assets
Rental revenue
Miscellaneous expenses
Rental expense
Depreciation expense
Income tax expense
Non-controlling interest
Net Income
20,000
7,500
852,500
411,800
63,200
90,000
88,500
40,000
693,500
$ 159,000
52,500
30,000
982,500
495,340
68,800
91,200
102,000
6,960
764,300
1.218,200

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