Preparing a consolidated income statementCost 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 $300,000 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 $180,000 and to an unrecorded Trademark valued at $120,000. The building asset is being depreciated over a 10-year period and the Trademark is being amortized over a 6-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $400,000 of intercompany sales. At the beginning of the current year, there were $70,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $50,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $100,000 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 $12,000,000 $1,300,000 Cost of goods sold (7,000,000) (650,000) Gross profit 5,000,000 650,000 Income (loss) from subsidiary 70,000 Operating expenses (2,500,000) (370,000) Net income $2,570,000 $280,000 Reconciliation of Cost to Equity Method Parent's preconsolidation net income $ Dividend Income P% x Net income of subsidiary P% x AAP amortization P% of Upstream profit Downstream prot Net income attributable to controlling interest $ Consolidated Income Statement Sales 33 Cost of goods sold Gross profit Operating expenses 0 0 0