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 $750,000 in excess of the subsidiary's Stockholders' Equity on the acquisition date. This ex assigned to a building that was estimated to be undervalued by $450,000 and to an unrecorded patent valued at $300,000. 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 s basis with no salvage value. During the current year, the subsidiary declared and paid $120,000 of dividends. The parent company uses the equity method of pre-consolidation investment bookkeeping. Each company reports the following income statemen current year: Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent Subsidiary $6,000,000 $1,800,000 (4.200.000) (1.080.000) 1.000.000 720.000 129,675 Sales Cost of goods sold Gross profit Operating expenses (1.140.000) (468.000) $789,675 $252.000 a. Compute the income (loss) from subsidiary of $129,675 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ AAP Adjusted subsidiary income S P% of interest X Income (loss) from subsidiary S 96 b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement S
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 $750,000 in excess of the subsidiary's Stockholders' Equity on the acquisition date. This ex assigned to a building that was estimated to be undervalued by $450,000 and to an unrecorded patent valued at $300,000. 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 s basis with no salvage value. During the current year, the subsidiary declared and paid $120,000 of dividends. The parent company uses the equity method of pre-consolidation investment bookkeeping. Each company reports the following income statemen current year: Income statement: Sales Cost of goods sold Gross profit Income (loss) from subsidiary Operating expenses Net income Parent Subsidiary $6,000,000 $1,800,000 (4.200.000) (1.080.000) 1.000.000 720.000 129,675 Sales Cost of goods sold Gross profit Operating expenses (1.140.000) (468.000) $789,675 $252.000 a. Compute the income (loss) from subsidiary of $129,675 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income $ AAP Adjusted subsidiary income S P% of interest X Income (loss) from subsidiary S 96 b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement S
Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations
Section: Chapter Questions
Problem 38P
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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 $750,000 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 $450,000 and to an unrecorded patent valued at $300,000. 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 $120,000 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 Subsidiary
$6,000,000 $1,800,000
(4.200,000) (1,080,000)
1,800,000 720,000
129,675
(1.140,000) (468.000)
$789,675
$252,000
a. Compute the Income (loss) from subsidiary of $129,675 reported by the parent company in its preconsolidation income statement.
Do not use negative signs with your answers below.
Subsidiary's net income
S
AAP
Adjusted subsidiary income $
P % of interest
X
Income (loss) from subsidiary
Sales
Cost of goods sold
Gross profit
Operating expenses
b. Prepare the consolidated income statement for the current year.
Do not use negative signs with your answers below.
Consolidated Income Statement
000
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