Reference no: EM133088000

Question - Shown below are selected ledger accounts from the trial balance of a parent and its subsidiary as of December 31, Year 10.

	P Co.	S Co.
Investment in bonds of P	$-	$36,800
Investment in shares of S (equity method)	140,899	-
Sales	633,000	V
Interest income	-	2,400
Equity method income	107,457	-
Gain on sale of land	3,000	-
Common shares	300,000	100,000
Retained earnings, beginning of year	60,000	30,000
Bonds payable 8%	196,000	-
Cost of sales	379,800	206,400
Interest expense	18,000	-
Selling and administrative expense	30,000	15,000
Income tax expense	33,000	8,790
Dividends	10,000	8,000

Additional Information:

P Company purchased its 90% interest in S Company in Year 2, on the date that S Company was incorporated, and has followed the equity method to account for its investment since that date.

On April 1, Year 6, land that had originally cost $12,000 was sold by S Company to P Company for $15,000. P purchased the land with the intention of developing it, but in Year 10 it decided that the location was not suitable and the land was sold to a chain of drug stores.

On January 1, Year 3, P Company issued $200,000 face value bonds due in 10 years. The proceeds from the bond issue amounted to $180,000.

On July 1, Year 10, S Company purchased $40,000 of these bonds on the open market at a cost of $36,000. Intercompany bondholding gains (losses) are allocated between the two affiliates.

S Company had $40,000 in sales to P Company during Year 10.

Use income tax allocation at a 40% tax rate.

Required -

(a) Prepare a consolidated income statement for Year 10.

(b) Prepare a consolidated statement of retained earnings for Year 10.