A parent company purchased an 80% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $460,000 in excess of the subsidiary’s Stockholders’ Equity on the acquisition date. This excess was assigned to a building that was estimated to be undervalued by $276,000 and to an unrecorded patent valued at $184,000. The building asset is being depreciated over a 16-year period and the patent is being amortized over an 8-year period, both on the straight-line basis with no salvage value. During the current year, the parent and subsidiary reported a total of $690,000 of intercompany sales. At the beginning of the current year, there were $48,300 of upstream intercompany profits in the parent’s inventory. At the end of the current year, there were $74,750 of downstream intercompany profits in the subsidiary’s inventory. During the current year, the subsidiary declared and paid $103,500 of dividends. The parent company uses the equity method of pre-consolidation investment bookkeeping. Each company reports the following income statement for the current year:
A parent company purchased an 80% controlling interest in its subsidiary several years ago. The aggregate fair value of the controlling and noncontrolling interest was $460,000 in excess of the subsidiary’s
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