The consolidated income statement of a parent and its 80%-owned subsidiary appears below. It was prepared by an accounting student before reading this chapter. CONSOLIDATED INCOME STATEMENT Sales Rental revenue Interest revenue Total revenue Cost of goods sold Rent expense Interest expense Administration expenses Income tax expense Non-controlling interest in profit Total costs and expenses Profit The following items were overlooked when the statement was prepared: $ 500,000 24,000 50,000 $ 574,000 $ 350,000 24,000 35,000 45,000 42,000 9,000 $ 505,000 $ 69,000 • The opening inventory of the parent contained inventory purchased from the subsidiary with an intercompany profit of $5,000. This inventory was sold by the parent during the current year. • During the year, intercompany sales (at a 40% gross profit rate) were made as follows: By the parent to the subsidiary By the subsidiary to the parent $ 100,000 80,000 • At the end of the year, half of the items purchased from the parent remained in the inventory of the subsidiary and none of the inventory purchased from the subsidiary remained in the parent's inventory. • All of the rental revenue and 60% of the interest revenue were intercompany and appeared on the income statement of the parent. . Assume a 40% rate for income tax.
The consolidated income statement of a parent and its 80%-owned subsidiary appears below. It was prepared by an accounting student before reading this chapter. CONSOLIDATED INCOME STATEMENT Sales Rental revenue Interest revenue Total revenue Cost of goods sold Rent expense Interest expense Administration expenses Income tax expense Non-controlling interest in profit Total costs and expenses Profit The following items were overlooked when the statement was prepared: $ 500,000 24,000 50,000 $ 574,000 $ 350,000 24,000 35,000 45,000 42,000 9,000 $ 505,000 $ 69,000 • The opening inventory of the parent contained inventory purchased from the subsidiary with an intercompany profit of $5,000. This inventory was sold by the parent during the current year. • During the year, intercompany sales (at a 40% gross profit rate) were made as follows: By the parent to the subsidiary By the subsidiary to the parent $ 100,000 80,000 • At the end of the year, half of the items purchased from the parent remained in the inventory of the subsidiary and none of the inventory purchased from the subsidiary remained in the parent's inventory. • All of the rental revenue and 60% of the interest revenue were intercompany and appeared on the income statement of the parent. . Assume a 40% rate for income tax.
Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Chapter6: Accounting Quality
Section: Chapter Questions
Problem 2IC
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Transcribed Image Text:The consolidated income statement of a parent and its 80%-owned subsidiary appears below. It was prepared by an accounting
student before reading this chapter.
CONSOLIDATED INCOME STATEMENT
Sales
Rental revenue
Interest revenue.
Total revenue
Cost of goods sold
Rent expense
Interest expense
Administration expenses
Income tax expense
Non-controlling interest in profit
Total costs and expenses
Profit
$ 500,000
24,000
50,000
$ 574,000
$ 350,000
The following items were overlooked when the statement was prepared:
By the parent to the subsidiary
By the subsidiary to the parent
24,000
35,000
45,000
42,000
9,000
$ 505,000
$ 69,000
• The opening inventory of the parent contained inventory purchased from the subsidiary with an intercompany profit of $5,000. This
inventory was sold by the parent during the current year.
. During the year, intercompany sales (at a 40% gross profit rate) were made as follows:
$ 100,000
80,000
• At the end of the year, half of the items purchased from the parent remained in the inventory of the subsidiary and none of the
inventory purchased from the subsidiary remained in the parent's inventory.
• All of the rental revenue and 60% of the interest revenue were intercompany and appeared on the income statement of the parent.
• Assume a 40% rate for income tax.
Transcribed Image Text:Required:
(a) Prepare a correct consolidated income statement. (Leave no cells blank - be certain to enter "0" wherever required. Input all
amounts as positive values.)
Sales
Parent Company
Consolidated Income Statement
for the Current Year
Interest revenue
Total revenue
Cost of goods sold
Rent expense
Interest expense
Administration expenses
Income tax expenses
Total expenses
Attributable to:
Shareholders of parent
Non-controlling interests
$
$
$
320,000
0
0
320,000
0
45,000
45,000
0
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