Problem

Up and its 80 percent owned subsidiary (Down) reported the following figures for the year...

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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Solutions For Problems in Chapter 7