Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream and downstream intercompany inventory 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 subsidiarys Stockholders Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $276,000 and to an unrecorded patent valued at $184,000. 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 $690,000 of intercompany sales. At the beginning of the current year, there were $48,300 of upstream intercompany profits in the parents inventory. At the end of the current year, there were $74,750 of downstream intercompany profits in the subsidiarys inventory. During the current year, the subsidiary declared and paid $103,500 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	$10,350,000	$1,495,000
Cost of goods sold	(6,900,000)	(690,000)
Gross profit	3,450,000	805,000
Income (loss) from subsidiary	170,890	-
Operating expenses	(2,760,000)	(506,000)
Net income	$860,890	$299,000

a. Compute the Income (loss) from subsidiary of $170,890 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	X		%
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.

Consolidated Income Statement
Sales
Cost of goods sold
Gross profit
Operating expenses
Net income attributable to noncontrolling interestsNet income attributable to the parentNet income
Net income attributable to noncontrolling interestsNet income attributable to the parentNet income
Net income attributable to noncontrolling interestsNet income attributable to the parentNet income