Reference no: EM132468324

Point 1: Reed, Inc., owns 90 percent of Griffin, Inc., and 20 percent of Rollin Company. Giffin, in turn, holds 60 percent of Rollin's outstanding stock. No excess amortization resulted from these acquisitions. During the current year, Rollin sold a variety of inventory items to Griffin for $40,000 although the original cost was $30,000. Of this total, Griffin still held $12,000 in inventory (at transfer price) at year-end.

Point 2: During this same period, Griffin sold merchandise to Reed for $100,000 although the original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still on hand.

Point 3: The initial value method was used to record each of these investments. None of the companies holds any other investments.

Question 1: How do you determine the consolidated income statement with these figures?

                              Reed                        Griffin                              Rollin

Sales                       $(1,000,000)            $(450,000)                    $(280,000)

Cost of goods sold           $670,000              $280,000                        $190,000

Expenses                          $110,000           $60,000                            $30,000

Dividend income:

Griffin                              $(36,000)                 0                                      0

Rollin                               $(4,000)                 $(12,000)                            0

Net income                     $(260,000)               $(122,000)                     $(60,000)