In: Accounting
Preparing a consolidated income statement—Cost method with
noncontrolling interest, AAP and upstream intercompany depreciable
asset profits
A parent company purchased a 90% controlling interest in its
subsidiary several years ago. The aggregate fair value of the
controlling and noncontrolling interest was $322,000 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 $210,000 and to an unrecorded patent valued at
$112,000. The building asset is being depreciated over a 12-year
period and the patent is being amortized over an 8-year period,
both on the straight-line basis with no salvage value. During a
previous year, the subsidiary sold to the parent company a piece of
depreciable property. The unconfirmed upstream gain on this
intercompany transaction was $140,000 at the beginning of the
current year. The upstream gain confirmed each year is $28,000.
During the current year, the subsidiary declared and paid $105,000
of dividends. The parent company uses the cost method of
pre-consolidation investment bookkeeping. Each company reports the
following income statement for the current year:
Income statement:
Sales $4,600,000 $1,750,000
Cost of goods sold (3,280,000) (1,078,000)
Gross profit 1,320,000 672,000
Income (loss) from subsidiary 94,5000
Operating expenses (960,000) (448,000)
Net income $454,500 $224,000
a. Starting with the parent’s current-year pre-consolidation net income of $454,500, compute the amount of current-year net income attributable to the parent that will be reported in the consolidated financial statements.
Reconciliation of Cost to Equity Method | |
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Parent's pre-consolidation net income - ?? Dividend Income - ?? P% x Net income of subsidiary - ?? P% x AAP amortization - ?? P% of Upstream profit - ?? Net income attributable to controlling interest - ?? Prepare the consolidated income statement for the current year. Sales - ?? COGS - ?? Gross Profit - ?? Operating Expenses - ?? Net Income - ?? Net Income attributable to noncontrolling interests - ?? Net income attributable to parent - ?? Please fill in the ?? blanks. |