Question

Preparing a consolidated income statement - with noncontrolling interest, but AAP or intercompany profits

A parent company purchased an 70% interest in its subsidiary several years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year, as shown in part b. below.

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

Elimination Entries

Parent Subsidiary Dr. Cr. Consolidated

Income statement:

Sales $6,000,000 $900,000

Cost of goods sold (4,200,000) (540,000)

Gross profit 1,800,000 360,000

Income (loss) from subsidiary 88,2000 0

Operating expenses (1,140,000) (234,000)

Net income $748,200 $126,000

Net income attributable to noncontrolling interests

Net income attributable to parent

Answer 1

Consol. Income Parent Subsidiary Elimination entries Consolidated

statement Dr Cr

Sales 6000000 900000 6900000

COGS -4200000 -540000 -4740000

Gross profit 1800000 360000 2160000

Income (loss) 88200 0 88200 0

from subsidiary

Operating -1140000 -234000 -1374000

expense

Net income 748200 126000 88200 786000

Net income attributable to 37800 37800

non-controlling interests*

Net income attributable to Parent 748200

Workings:

Net income attributable to non-controlling interests = 126000*30% = 37800