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there were $100,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $200,000 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 profe Income Cossirom subsidiary Operating expenses Nincome Compute the income (oss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement Do not use negative signs with your answers below. Subedary's net income $325.000 AAP 62.000 Upstream 100 000 Adjusted subsidiary income 362.500 P% of interest 70 253.750 190.000 103.750 X Downstream sa income oss from subsidiary $10.000.000 $2.500.000 (6.000.000 (1.500.000) 3.200.000 1.000.000 103.750 Saves Cost of goods so Gross pr Operating expenses (1.800.000 1675.000 $1.503.750 $325.000 o. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below Consolidated Income Statement Net income Net income abutable to noncontrolling Net income abutable to the parent @ $11.000.000 6.850.000 4150.000 2.401.500 1.668.500 108.750 1.558.750 M ✓

there were $100,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $200,000 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 profe Income Cossirom subsidiary Operating expenses Nincome Compute the income (oss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement Do not use negative signs with your answers below. Subedary's net income $325.000 AAP 62.000 Upstream 100 000 Adjusted subsidiary income 362.500 P% of interest 70 253.750 190.000 103.750 X Downstream sa income oss from subsidiary $10.000.000 $2.500.000 (6.000.000 (1.500.000) 3.200.000 1.000.000 103.750 Saves Cost of goods so Gross pr Operating expenses (1.800.000 1675.000 $1.503.750 $325.000 o. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below Consolidated Income Statement Net income Net income abutable to noncontrolling Net income abutable to the parent @ $11.000.000 6.850.000 4150.000 2.401.500 1.668.500 108.750 1.558.750 M ✓

FINANCIAL ACCOUNTING
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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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 $875,000 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 $500,000 and to an unrecorded patent valued at $375,000. The building asset is being depreciated over a 20-year period and the patent is being amortized over an 10-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $1,500,000 of intercompany sales. At the beginning of the current year, there were $100,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $200,000 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 $10,000,000 $2,500,000 (6,800,000) (1,500,000) 3,200,000 1,000,000 103,750 (1,800,000) (675,000) $1,503,750 $325,000 a. Compute the Income (loss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ 325,000 ✓ AAP 62,000 x Upstream sales 100,000 ✓ 362,500 ✓ Adjusted subsidiary income $ P% of interest X Downstream sales Income (loss) from subsidiary $ 70 % 253,750 ✓ 150,000 ✓ 103,750 ✓ - 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 $ 11,000,000 ✓ 6,850,000 ✓ 4,150,000 ✓ 2,481,500 x 1,668,500 x 108,750 ✓ S 1,559,750 x + ✔ + ✔ +
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 $875,000 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 $500,000 and to an unrecorded patent valued at $375,000. The building asset is being depreciated over a 20-year period and the patent is being amortized over an 10-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $1,500,000 of intercompany sales. At the beginning of the current year, there were $100,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $200,000 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 $10,000,000 $2,500,000 (6,800,000) (1,500,000) 3,200,000 1,000,000 103,750 (1,800,000) (675,000) $1,503,750 $325,000 a. Compute the Income (loss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ 325,000 ✓ AAP 62,000 x Upstream sales 100,000 ✓ 362,500 ✓ Adjusted subsidiary income $ P% of interest X Downstream sales Income (loss) from subsidiary $ 70 % 253,750 ✓ 150,000 ✓ 103,750 ✓ - 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 $ 11,000,000 ✓ 6,850,000 ✓ 4,150,000 ✓ 2,481,500 x 1,668,500 x 108,750 ✓ S 1,559,750 x + ✔ + ✔ +
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