Up and its 80 percent–owned subsidiary (Down) reported the following figures for the year ending December 31, 2018. Down paid dividends of $30,000 during this period. UP DOWN Sales $(600000) $(300000) Cost of goods sold 300000 140000 Operating expenses 174000 60000 Dividend Income (24000) -0- Net income $(150000) $(100000) In 2017, intra-entity gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2018. In 2018, intra-entity gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2019.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.
Up and its 80 percent–owned subsidiary (Down) reported the following figures for the year ending December 31, 2018. Down paid dividends of $30,000 during this period. UP DOWN Sales $(600000) $(300000) Cost of goods sold 300000 140000 Operating expenses 174000 60000 Dividend Income (24000) -0- Net income $(150000) $(100000) In 2017, intra-entity gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2018. In 2018, intra-entity gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2019.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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Up and its 80 percent–owned subsidiary (Down) reported the following figures for the year ending
December 31, 2018. Down paid dividends of $30,000 during this period.
| UP | DOWN | |
| Sales | $(600000) | $(300000) |
| Cost of goods sold | 300000 | 140000 |
| Operating expenses | 174000 | 60000 |
| Dividend Income | (24000) | -0- |
| Net income | $(150000) | $(100000) |
In 2017, intra-entity gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2018. In 2018, intra-entity gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2019.
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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