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.

Homework Answers

Answer #1

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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