Homework SourseFields Company purchased a 70 interest in Mullen Company fiv
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 |
Solution
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* |
