Fields Company purchased a 70% interest in Mullen Company five years ago with no
ID: 2610860 • Letter: F
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.
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
Explanation / Answer
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 $)
*In consolidated income statement, only holding company's share of income in subsidiary is included.
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*Related Questions
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