Prepare correct consolidated income statements for years

Assignment Help Accounting Basics

Reference no: EM132838884

Problem - 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 $30,000. 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 Statement
	Year 5	Year 6
Miscellaneous revenues	$825,000	$900,000
Gain on sale of assets	20,000	52,500
Rental revenue	7,500	30,000
	852,500	982,500
Miscellaneous expenses	411,800	495,340
Rental expense	63,200	68,800
Depreciation expense	90,000	91,200
Income tax expense	88,500	102,000
Non-controlling interest	40,000	6,960
	693,500	764,300
Net income	$159,000	$218,200

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

Reference no: EM132838884

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