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Question 2Partially correctMark 5.00 out of 15.00 Not flaggedFlag question Question 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 $350,000 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 $200,000 and to an unrecorded patent valued at $150,000. The building asset is being depreciated over a 16-year period and the patent is being amortized over an 8-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $600,000 of intercompany sales. At the beginning of the current year, there were $40,000 of upstream intercompany profits in the parent’s inventory. At the end of the current year, there were $60,000 of downstream intercompany profits in the subsidiary’s inventory. During the current year, the subsidiary declared and paid $80,000 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 $10,000,000 $1,000,000 Cost of goods sold (6,800,000) (600,000) Gross profit 3,200,000 400,000 Income (loss) from subsidiary 37,125 - Operating expenses (1,800,000) (270,000) Net income $1,437,125 $130,000 a. Compute the Income (loss) from subsidiary of $37,125 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income Answer 91,000 AAP Answer 21,875 Upstream sales Answer 28,000 Adjusted subsidiary income Answer 97,125 P % of interest X Answer 70 % Answer 0 Downstream sales Answer 60,000 Income (loss) from subsidiary Answer 37,125 b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Consolidated Income Statement Sales Answer 58,400,000 Cost of goods sold Answer (6,821,100) Gross profit Answer 8,580,000 Operating expenses Answer (2,101,290) Answer Answer 2,470,720 Answer Answer 41,010 Answer Answer 1,417,125 Feedback You have correctly selected 6. Partially correct Marks for this submission: 5.00/15.00.

Answer 1