Up and its 80 percent owned subsidiary (Down) reported the following figures for the year ending December 31,2013. Down paid dividends of $30,000 during this period.
| Up | Down |
Sales | $(600,000) | $(300,000) |
Cost of goods sold | 300,000 | 140,000 |
Operating expenses | 174,000 | 60,000 |
Dividend income | (24,000) | -0- |
Net income | $(150,000) | $(100,000) |
In 2012, unrealized gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2013. In 2013, unrealized gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2014.
a. What amounts appear for each line in a consolidated income statement? Explain your computations.
b. What income tax expense should appear on the consolidated income statement if each company files a separate return? Assume that the tax rate is 30 percent.
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