Prepare correct consolidated income statements

Assignment Help Accounting Basics

Reference no: EM131914835

Problem

Modern Advanced Accounting in Canada 8th Edition: Chapter 7 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 $24,000. 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 STATEMENTS
		Year 5		Year 6
Miscellaneous revenues	$	800,000	$	875,000
Gain on sale of assets		16,000		49,000
Rental revenue		6,000		24,000
		822,000		948,000
Miscellaneous expenses		407,800		494,340
Rental expense		59,700		67,300
Depreciation expense		85,000		87,700
Income tax expense		86,000		99,500
Non-controlling interest		37,500		6,360
		676,000		755,200
Net income	$	146,000	$	192,800

Required:

Prepare correct consolidated income statements for Years 5 and 6.

Reference no: EM131914835

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