Question

i need your help to the below picture kindly i need more explnation

thanks

ahmad darwish

P 10-12 Tax] Taxable incomes for Pop Corporation and Son Corporation,its 70 percent-owned subsidiary, for 2016 Son Sales Dividends received from Son $1,000$600 56 1056600 500240 160 656400 Total revenue Cost of sales Operating expenses 156 Total deductions Taxable income S 400 ADDITIONAL INFORMATION 1. Pop acquined its interest in Son at a fair value equal to book value on December 31. 2o1s. 2. Son paid dividends of s80,000 in 2016. a. Pop sola $1so ox0 in merchandisue to Son daring 2016, and there was. $20.c00 in unrealized profit from the sales at year-end 4. A flat 34 percent income tax rate is applicable 5. Pop is eligible for the 80 percent dividends-received deduction REQUIRED: tion inceonme statement workpapet for Pop Corporation and Subsidiary for 2016

Answer 1

Solution: Pop Corporation ownes 70% of the shares in Son Corportation. Consolidation of Accounts is done as per Equity Metho as the company has > 50% interest in Son Corporation. Additional Entries related to Pop Corporation: Dividend share of Pop-70% of 80,000-56,000 To Remove the inter company dividend Investment in Son A/C Dr $56,000 To Dividend Declared $56,000

Elimination and Work paper Entry for the Downstream Sale Sales Elimination entry A/C Dr $1,80,000 To Purchases Sorn Corporation $1,80,000 $20,000 unrealized profit means that the inventory is inflated Cost of Goods Sold A/C $20,000 Ending Inventory A/C $20,000

If you have any further questions please let me know in the comment section. Will happy to look into it and respond.

Income Statements Pop Corporation Sales Dividend Income Total Cost of Goods Sold Operating Expenses Total Net Income Non Contolling Interest Net Income Dividend Paid Taxable Income Tax Rate of 34% Income After Tax Son Corporation Debit Credit NCI Total $1,000 $56 $1,056 $500 $156 $656 $180 $56 $236 $1,420 $0 $1,420 $580 $316 $180 $240 $160 $200 $200 $20 $180 $524 $56 $0 24 $158 $306