Answered: Up Down $ (600,000) 300,000 174,000…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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.
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
Down
$ (600,000)
300,000
174,000
$(300,000)
Sales.....
Cost of goods sold
Operating expenses
Dividend income
60,000
-0-
Net income
$ (150,000)
$(100,000)

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