Question

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

Up and its 80 percent–owned subsidiary (Down) reported the following figures for the year ending December 31, 2018. Down paid dividends of $54,000 during this period.

Up Down
Sales $ (1,080,000 ) $ (540,000 )
Cost of goods sold 540,000 252,800
Operating expenses 313,200 108,000
Dividend income (43,200 ) 0
Net income $ (270,000 ) $ (179,200 )

In 2017, intra-entity gross profits of $54,000 on upstream transfers of $162,000 were deferred into 2018. In 2018, intra-entity gross profits of $71,200 on upstream transfers of $196,400 were deferred into 2019.

  1. What amounts appear for each line in a consolidated income statement?

  2. 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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