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 $24,000. This was the only intercompany rent transaction that occurred each year. The equipment had a remaining life of five years on the date of the intercompany sale.
• The Year 6 gain on sale of assets resulted from the January 1 sale of a building, with a remaining life of seven years, by the subsidiary to the parent.
• Both gains were taxed at a rate of 40%.
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CONSOLIDATED INCOME STATEMENTS
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|
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Year 5
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|
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Year 6
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|
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Miscellaneous revenues
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$
|
800,000
|
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$
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875,000
|
|
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Gain on sale of assets
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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
|
|
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Depreciation expense
|
|
85,000
|
|
|
87,700
|
|
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Income tax expense
|
|
86,000
|
|
|
99,500
|
|
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Non-controlling interest
|
|
37,500
|
|
|
6,360
|
|
|
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676,000
|
|
|
755,200
|
|
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Net income
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$
|
146,000
|
|
$
|
192,800
|
|
Required:
Prepare correct consolidated income statements for Years 5 and 6.