ACC 612 ACC612 WEEK 5 DISCUSSION 2 (ASHFORD)
Ashford ACC 612 Week 5 Discussion 2 Consolidated Income [CLO: 4]
Consolidated Income [CLO: 4]. 1st Post Due by Day 3. Standard Company has a relatively high profit margin on its sales and Jewel Company has a substantially lower profit margin. Standard holds 55% of Jewel’s common stock and includes Jewel Company in its consolidated financial statements. Standard and Jewel reported sales of $100,000 and $60,000 respectively, in 2012. Sales increased in 2013 to $120,000 and $280,000. The average profit margin of the two companies remained constant over the two years at 60% and 10% respectively.
Sarah, a Standard executive, was aware that the subsidiary was awarded a major new contract in 2013 and anticipated a substantial increase in net income for the year. She was disappointed to learn that the consolidated net income allocated to the non-controlling interest had increased to 38% even though sales were 2.5 times higher than in in 2012. She is not trained in accounting and does not understand the fundamental processes for preparing consolidated income statements.
• Prepare a memo to Sarah explaining how consolidated net income is computed and the procedures used to allocate income to the parent company and the non-controlling interest. The memo should contain quotes from authoritative literature.
• Prepare an analysis showing the income statement amounts actually reported for 2012 and 2013.
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