Question

Preparing a consolidated income statement Equity method with noncontrolling interest, AAP and upstream intercompany depreciable asset profits A parent company purchased an 80% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $460,000 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 $300,000 and to an unrecorded Customer List valued at $160,000. The building asset is being depreciated over a 12-year period and the Customer List is being amortized over a 5-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 $120,000 at the beginning of the current year. The upstream gain confirmed each year is $30,000. During the current year, the subsidiary declared and paid $180,000 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 proft Income (loss) from subsidiary Operating expenses $12,000,000 $2,400,000 (8,400,000) (1,440,000) 3,600,000 960,000 247,200 (2,280,000) (624,000) $1,567,200 $336,000 Net income a. Compute the Income (loss) from subsidiary of $247,200 reported by the parent company in its pre- consolidation income statement. Do not use negative signs with your answers below Subsidiary's net income AAP

Answer 1

	Amortization expense of AAP assets
		Cost	Life	Amortization Per Yr
		[a]	[b]	[a/b]
	Building	300000	12	25000
	Customer List	160000	5	32000
		460000		57000
a	Subsidiary Net Income-a	336000
	AAP(b)	57000
	Confirmed Net Gain ©	30000
	Adjusted Susbsidiary Net Income [a-(b+c)]	309000
	P% of Interest	80%
	Income (Loss) from subsidiary	247200
b	WN
	Sales(12000000+2400000)	14400000
	Cost of Goods Sold(8400000+1440000)	9840000
	Operating Expenses	4560000
	Parent	2280000
	Subsidairy	624000
	AAP	57000
	Confirm Gain on AAP	-30000
	Operating Expenses	2931000
	Net Income Attributable to non controlling interest
	Adjusted Net Income Of Subsidiary	309000
	Non Controlling Share (309000*20%)	61800
		Comparitive Income Statement
	Sales-a	14400000
	Cost of Goods Sold-b	9840000
	Gross Profit(c=a-b)	4560000
	Operating Expenses-d	2931000
	Net Income (e=c-d)	1629000
	Net Income Attributable to non controlling interest-f	61800
	Net income attributable to the parent (e-f)	1567200