Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 20X7. On this date the book value of Sarada's net identifiable assets totaled $100,000. Any excess was attributed to a patent with a 10-year life.
During 20X9, Dills Company and Sarada Company reported the following internally generated income before taxes:
Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year. Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 20X9 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was $30,000. It has a 5-year life.
The firms file separate tax returns. Both are subject to a 30% tax rate. Dills Company receives an 80% dividend deduction.
Required:
Prepare a consolidated income statement for 20X9. Include income distribution for both firms.

Question

Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 20X7. On this date the book value of Sarada's net identifiable assets totaled $100,000. Any excess was attributed to a patent with a 10-year life.
During 20X9, Dills Company and Sarada Company reported the following internally generated income before taxes:  
Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year. Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 20X9 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was $30,000. It has a 5-year life.
The firms file separate tax returns. Both are subject to a 30% tax rate. Dills Company receives an 80% dividend deduction.
Required:
Prepare a consolidated income statement for 20X9. Include income distribution for both firms.

Quizplus · Accepted Answer

The Answer of Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 20X7. On this date the book value of Sarada's net identifiable assets totaled $100,000. Any excess was attributed to a patent with a 10-year life.
During 20X9, Dills Company and Sarada Company reported the following internally generated income before taxes:  
Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year. Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 20X9 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was $30,000. It has a 5-year life.
The firms file separate tax returns. Both are subject to a 30% tax rate. Dills Company receives an 80% dividend deduction.
Required:
Prepare a consolidated income statement for 20X9. Include income distribution for both firms.

Dills Company Purchased an 80% Interest in the Common Stock