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Preparing a consolidated income statementEquity method with noncontrolling interest, AAP and upstream intercompany depreciable asset 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 $345,000 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 $225,000 and to an unrecorded Customer List valued at $120,000. The building asset is being depreciated over a 12-year period and the Customer List is being amortized over a 5-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 $90,000 at the beginning of the current year. The upstream gain confirmed each year is $22,500. During the current year, the subsidiary declared and paid $135,000 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	$12,000,000	$1,800,000
Cost of goods sold	(8,400,000)	(1,080,000)
Gross profit	3,600,000	720,000
Income (loss) from subsidiary	185,400	0
Operating expenses	(2,280,000)	(468,000)
Net income	$1,505,400	$252,000

a. Compute the Income (loss) from subsidiary of $185,400 reported by the parent company in its pre-consolidation income statement.

Do not use negative signs with your answers below.

Subsidiary's net income		Answer
AAP		Answer
Confirmed upstream gain		Answer
Adjusted subsidiary income		Answer
P % of interest	X	Answer	%
Income (loss) from subsidiary		Answer

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

Do not use negative signs with your answers below.

Consolidated Income Statement
Sales	Answer
Cost of goods sold	Answer
Gross profit	Answer
Operating expenses	Answer
	Answer
	Answer
	Answer

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