Question

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.

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.