Question

# Fields Company purchased a 70% interest in Mullen Company five years ago with no AAP (i.e.,...

Fields Company purchased a 70% interest in Mullen Company five years ago with no AAP (i.e., purchased at book value). Each reports the following income statement for the current year:

 Income Statement Fields Mullen Sales \$7,800,000 \$1,250,000 Cost of goods sold (5,900,000) (675,000) Gross Profit 1,900,000 575,000 Income (loss) from subsidiary 206,500 Operating expenses (1,650,000) (280,000) Net income \$   456,500 \$   295,000

Required:

a.     Compute the income (loss) from subsidiary of \$206,500 reported by the Fields Company.

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

a) As Fields company purchased 70% interest in Mullen company, its income (loss) from subsidiary will be 70% of the total net income of Mullen company which is calculated as follows:-

Total Net income of Mullen company = \$295,000

Fields company's share = 70%

Income (loss) from Subsidiary reported by Fields company = \$295,000*70% = \$206,500

b) Consolidated Income Statement (Amount in \$)

 Particulars Fields Mullen Total Sales 7,800,000 1,250,000 9,050,000 Less: Cost of goods sold (5,900,000) (675,000) (6,575,000) Gross Profit 1,900,000 575,000 2,475,000 Less: Operating expenses (1,650,000) (280,000) (1,930,000) Net Income 250,000 295,000 545,000 Less: Share of non controlling interest* (\$295,000*30%) (88,500) Consolidated Net income 456,500*

*In consolidated income statement, only holding company's share of income in subsidiary is included.

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