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Preparing a consolidated income statementCost method with noncontrolling interest, AAP and upstream intercompany depreciable asset profits A parent company purchased a 90% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $276,000 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 $180,000 and to an unrecorded patent valued at $96,000. The building asset is being depreciated over a 12-year period and the patent is being amortized over an 8-year period, both on the straight-line basis with no salvage value. During a previous year, the subsidiary sold to the parent company a piece of depreciable property. The unconfirmed upstream gain on this intercompany transaction was $120,000 at the beginning of the current year. The upstream gain confirmed each year is $24,000. During the current year, the subsidiary declared and paid $90,000 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:

a. Starting with the parents current-year pre-consolidation net income of $441,000, 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.

b. Prepare the consolidated income statement for the current year.

Do not use negative signs with your answers below.

\begin{tabular}{|c|c|c|} \hline \multirow{2}{*}{\multicolumn{2}{|c|}{ Income statement: }} & \multirow[t]{2}{*}{ Subsidiary } \\ \hline & & \\ \hline Sales & $4,600,000 & $1,500,000 \\ \hline Cost of goods sold & (3,280,000) & (924,000) \\ \hline Gross profit & 1,320,000 & 576,000 \\ \hline Income (loss) from subsidiary & 81,000 & 0 \\ \hline Operating expenses & (960,000) & (384,000) \\ \hline Net income & $441,000 & $192,000 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|c|}{ Reconciliation of Cost to Equity Method } \\ \hline Parent's pre-consolidation net income & $ & 441,000 \\ \hline Dividend Income & & 81,000 \\ \hline P\% x Net income of subsidiary & & 172,800 \\ \hline P96 A AAP amortization & & 24,300 \\ \hline P\% of Upstream profit & & 21,600 \\ \hline Net income attributable to controlling interest & $ & 530,100 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|} \hline \multicolumn{4}{|l|}{ Consolidated Income Statement } \\ \hline Sales & & $ & 6,100,000 \\ \hline Cost of goods sold & & & 4,204,000 \\ \hline Gross profit & & & 1,896,000 \\ \hline Operating expenses & & & 1,344,000 \\ \hline Net income & & & 751,000 \\ \hline Net income attributable to noncontrolling interests & & & 28,400 \\ \hline Net income attributable to the parent & & $ & 722,600 \\ \hline \end{tabular}

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