A parent company purchased a 75% controlling interest in its subsidiary several years ago. The aggregate fair
Question:
A parent company purchased a 75% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $648,000 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 $360,000 and to an unrecorded Customer List valued at $288,000. The building asset is being depreciated over a 15-year period and the Customer List is being amortized over a 4-year period, both on the straight-line basis with no salvage value. During the current year, the subsidiary declared and paid $160,000 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:
Parent | Subsidiary | |
---|---|---|
Income statement: | ||
Sales | $9,600,000 | $2,080,000 |
Cost of goods sold | (6,720,000) | (1,152,000) |
Gross profit | 2,880,000 | 928,000 |
Income (loss) from subsidiary | 120,000 | 0 |
Operating expenses | (1,824,000) | (563,200) |
Net income | $1,176,000 | $364,800 |
a. Starting with the parent’s current-year pre-consolidation net income of $1,176,000, compute the amount of current-year net income attributable to the parent that will be reported in the consolidated financial statements.
Do not use negative signs with your answers below.
Reconciliation of Cost to Equity Method | |
---|---|
Parent's pre-consolidation net income | |
Dividend Income | |
P% x Net income of subsidiary | |
P% x AAP amortization | |
Net income attributable to controlling interest |
b. Prepare the consolidated income statement for the current year.
Do not use negative signs with your answers below.
Consolidated Income Statement | |
---|---|
Sales | |
Cost of goods sold | |
Gross profit | |
Operating expenses | |
Net income | |
Net income attributable to noncontrolling interests | |
Net income attributable to the parent |
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones