Separate taxation, intercompany transactions. (This is the same as Exercise 5 but with s...

Separate taxation, intercompany transactions. (This is the same as Exercise 5 but with separate taxation.) Dunker Company purchases an 80% interest in the common stock of Fennig Company for $850,000 on January 1, 2017. The fair value of the NCI is $212,500. At the time of the purchase, the total stockholders’ equity of Fennig is $968,750. The price paid is $75,000 in excess of the book value of the controlling portion of Fennig equity. The excess is attributed to a patent with a 10-year life. During 2019, Dunker Company and Fennig Company report the following internally generated income before taxes:

Fennig Company sells goods to Dunker Company for $50,000. Dunker Company has $20,000 of Fennig Company’s goods in its beginning inventory and $6,000 of Fennig’s goods in its ending inventory. Fennig Company sells goods to Dunker Company at a gross profit of 40%.

Dunker Company sells a new machine to Fennig Company on January 1, 2019, for $30,000. The machine has a 5-year life, and its cost is $25,000. The companies file separate tax returns. Both are subject to a 30% tax rate. Dunker receives an 80% dividend deduction.

Prepare a consolidated income statement for 2019. Include income distribution schedules for both companies.