Chapter 4, Problem 26P

a.

To determine

Identify the figures which would appear in a consolidated income statement for this year.

Explanation of Solution

Figures which would appear in a consolidated income statement for this year:

Particulars	Amount
Consolidated revenues	$  1,500,000  (1)
Consolidated expenses	$(1,031,000) (2)
Consolidated net income	$     469,000  (3)
Balance of non-controlling interest in Company S	$     (50,700) (4)
Balance of Controlling interest in Company S	$     418,300  (5)

Table: (1)

Working note:

Computation of consolidated revenues:

$\begin{array}{c}\text{Consolidated}\text{revenues}=\$900,000+\$600,000\\ =\$1,500,000\end{array}$ (1)

Computation of consolidated expenses:

$\begin{array}{c}\text{Consolidated}\text{expenses}=\$600,000+\$400,000+\text{Amortization}\text{of}\text{building}\\ \text{+}\text{Amortization}\text{of}\text{patent}\\ =\$1,000,000+\frac{\$330,000-\$300,000}{10}+\frac{\$140,000}{5}\\ =\$1,031,000\end{array}$ (2)

Computation of consolidated net income:

$\begin{array}{c}\text{Consolidated}\text{net}\text{income}\text{=}\$1,500,000-\$1,031,000\\ =\$469,000\end{array}$ (3)

Computation of amount of net income of Company S allocated to non-controlling interest:

$\begin{array}{c}\text{Net}\text{income}\text{for}\text{non-controlling}\text{interest}\text{=}\left(\begin{array}{c}\text{Revenue}\text{of}\text{Company}\text{S}\\ -\text{Expenses}\text{of}\text{Company}\text{S}\\ -\text{Amortization}\text{expenses}\end{array}\right)\\ =\left(\$600,000-\$400,000-\$31,000\right)\times 30\%\\ =\$50,700\end{array}$ (4)

Computation of amount of net income of allocated to controlling interest:

$\begin{array}{c}\text{Net}\text{income}\text{for}\text{controlling}\text{interest=}\$469,000-\$50,700\\ =\$418,300\end{array}$ (5)

b.

To determine

Identify the amounts which would appear in a consolidated income statement for this year.

Explanation of Solution

Amounts which would appear in a consolidated income statement for this year:

Particulars	Amount
Consolidated revenues	$  1,350,000  (6)
Consolidated expenses	$   (923,250) (7)
Consolidated net income	$     426,750  (8)
Balance of non-controlling interest in Company S	$     (38,025) (9)
Balance of Controlling interest in Company S	$     388,725  (10)

Table: (1)

Working note:

Computation of consolidated revenues:

$\begin{array}{c}\text{Consolidated}\text{revenues}=\$900,000+\frac{\$600,000}{12}\times 9\\ =\$1,350,000\end{array}$ (6)

Computation of consolidated expenses:

$\begin{array}{c}\text{Consolidated}\text{expenses}=\$600,000+\frac{\$400,000}{12}\times 9+\left(\frac{\text{Amortization}\text{of}\text{building}}{12}\times 9\right)\\ \text{+}\left(\frac{\text{Amortization}\text{of}\text{patent}}{12}\times 9\right)\\ =\$900,000+\left(\frac{\$330,000-\$300,000}{10\times 12}\times 9\right)+\left(\frac{\$140,000}{5\times 12}\times 9\right)\\ =\$923,250\end{array}$ (7)

Computation of consolidated net income:

$\begin{array}{c}\text{Consolidated}\text{net}\text{income}\text{=}\$1,350,000-\$923,250\\ =\$426,750\end{array}$ (8)

Computation of amount of net income of Company S allocated to non-controlling interest:

$\begin{array}{c}\text{Net}\text{income}\text{for}\text{non-controlling}\text{interest}\text{=}\left(\begin{array}{c}\text{Revenue}\text{of}\text{Company}\text{S}\\ -\text{Expenses}\text{of}\text{Company}\text{S}\\ -\text{Amortization}\text{expenses}\end{array}\right)\\ =\left(\$450,000-\$300,000-\$23,250\right)\times 30\%\\ =\$38,025\end{array}$ (9)

Computation of amount of net income of allocated to controlling interest:

$\begin{array}{c}\text{Net}\text{income}\text{for}\text{controlling}\text{interest=}\$426,750-\$38,025\\ =\$388,725\end{array}$ (10)