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