Question

Up and its 80 percent–owned subsidiary (Down) reported the following figures for the year ending December 31, 2018. Down paid dividends of $33,000 during this period.

	Up				Down
Sales	$	(660,000	)		$	(330,000	)
Cost of goods sold		330,000				154,100
Operating expenses		191,400				66,000
Dividend income		(26,400	)			0
Net income	$	(165,000	)		$	(109,900	)

In 2017, intra-entity gross profits of $33,000 on upstream transfers of $99,000 were deferred into 2018. In 2018, intra-entity gross profits of $43,900 on upstream transfers of $120,800 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.

Answer 1

	Particulars	Amount(in $)
Answer a)	Sales	869,200
	Cost of goods sold	(374,200)
	Operating Expenses	(257,400)
	Dividend Income	-
	Consolidated Net Income	237,600
	Non Controling interest in consolidated Net income	(19,800)
	Controlling interest in cosolidated net income	217,800
Answer b)	Income Tax expenses	71,280
Workings:-
a)	Sales = 660,000+330,000-120,800 = 869,200
	Cost of goods sold = 330,000+154,100-(120,800+33,000)+43900 =374,200
	Operating expense = 191,400+66,000=257,400
	Consolidated Net Income = 869,200-374,200-257,400=237,600
	Non Controling interest in consolidated Net income
	=(109,900+33,000-43,900)*20%
	=19,800
	Controlling interest in cosolidated net income
	=237,00-19,800 = 217,800
b)	Taxes = (165,000-26,400)*30%	41,580
	Taxes = 109,900*30%	32,970
	Total	74,550
	Tax assets(439,00-33000)*30%	3,270
	Income Tax Expense(74,550-3,270)	71,280