Prepare correct consolidated income statements for years

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Reference no: EM132742123

Question - The comparative consolidated income statements of a parent and its 75%-owned subsidiary were prepared incorrectly as at December 31 and are shown in the table given below. The following items were overlooked when the statements were prepared:

The Year 5 gain on sale of assets resulted from the subsidiary selling equipment to the parent on September 30. The parent immediately leased the equipment back to the subsidiary at an annual rental of $28,800. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale.

The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent.

Both gains were taxed at a rate of 40%.

CONSOLIDATED INCOME STATEMENTS Year 5 Year 6

Miscellaneous revenues $820,000 $895,000

Gain on sale of assets 19,200 51,800

Rental revenue 7,200 28,800 846,400 975,600

Miscellaneous expenses 411,000 495,140

Rental expense 62,500 68,500

Depreciation expense 89,000 90,500

Income tax expense 88,000 101,500

Non-controlling interest 39,500 6,840 690,000 762,480

Net income $156,400 $213,120

Required - Prepare correct consolidated income statements for Years 5 and 6.

Reference no: EM132742123

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