Arriba and its 80 percent-owned subsidiary (Abajo) reported the following figures for the year ending December 31, 2021 (credit balances indicated by parentheses). Abajo paid dividends of $55,000 during this period. Sales Cost of goods sold Operating expenses Dividend income Net income Arriba $(1,100,000) Abajo $(550,000) 550,000 319,000 (44,000) 257,500 110,000 0 $ (275,000) $ (182,500) In 2020, intra-entity gross profits of $55,000 on upstream transfers of $165,000 were deferred into 2021. In 2021 intra-entity gross profits of $72,500 on upstream transfers of $200,000 were deferred into 2022. a. What amounts appear for each line in a consolidated income statement for the year ending December 31, 2021? 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 21 percent
Arriba and its 80 percent-owned subsidiary (Abajo) reported the following figures for the year ending December 31, 2021 (credit balances indicated by parentheses). Abajo paid dividends of $55,000 during this period. Sales Cost of goods sold Operating expenses Dividend income Net income Arriba $(1,100,000) Abajo $(550,000) 550,000 319,000 (44,000) 257,500 110,000 0 $ (275,000) $ (182,500) In 2020, intra-entity gross profits of $55,000 on upstream transfers of $165,000 were deferred into 2021. In 2021 intra-entity gross profits of $72,500 on upstream transfers of $200,000 were deferred into 2022. a. What amounts appear for each line in a consolidated income statement for the year ending December 31, 2021? 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 21 percent
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Arriba and its 80 percent-owned subsidiary (Abajo) reported the following figures for the year ending December 31, 2021 (credit
balances indicated by parentheses). Abajo paid dividends of $55,000 during this period.
Sales
Cost of goods sold
Operating expenses
Dividend income
Net income
Arriba
$(1,100,000)
550,000
319,000
(44,000)
Abajo
$ (550,000)
257,500
110,000
0
$ (275,000)
$ (182,500)
In 2020, intra-entity gross profits of $55,000 on upstream transfers of $165,000 were deferred into 2021. In 2021 intra-entity gross
profits of $72,500 on upstream transfers of $200,000 were deferred into 2022.
a. What amounts appear for each line in a consolidated income statement for the year ending December 31, 2021?
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 21 percent
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