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 $875,000 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 $500,000 and to an unrecorded patent valued at $375,000. The building asset is being depreciated over a 20-year period and the patent is being amortized over an 10-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $1,500,000 of intercompany sales. At the beginning of the current year, there were $100,000 of upstream intercompany profits in the parent's inventory. At the end of the current year, there were $150,000 of downstream intercompany profits in the subsidiary's inventory. During the current year, the subsidiary declared and paid $200,000 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 profit Income (loss) from subsidiary Operating expenses Net income $10,000,000 $2,500,000 (6,800,000) (1,500,000) 3,200,000 1,000,000 103,750 (1,800,000) (675,000) $1,503,750 $325,000 a. Compute the Income (loss) from subsidiary of $103,750 reported by the parent company in its preconsolidation income statement. Do not use negative signs with your answers below. Subsidiary's net income AAP Upstream sales Adjusted subsidiary income P % of interest $ 0 x 0 x 0 * $ 0 x X 70 96 0 x 0 103,750 Downstream sales Income (loss) from subsidiary $ b. Prepare the consolidated income statement for the current year. Do not use negative signs with your answers below. Sales Cost of goods sold Gross profit Operating expenses Consolidated Income Statement $ 12,000,000 x 8,300,000 x Net income Net income attributable to noncontrolling interests Net income attributable to the parent Check 4,200,000 x 0 x 0 x $ 0 x