Income statements of M Cop. and K Co. for the year ended December 31, Year 6, are presented below:

Additional Information
€¢ M Co. uses the equity method to account for its investment in K Co.
€¢ M Co. acquired its 80% interest in K Co. on January 1, Year 1. On that date, the acquisition differential of $25,000 was allocated entirely to buildings; it is being amortized over a 20-year period.
€¢ Amortization expense is grouped with distribution expenses, and impairment losses, if any, are grouped with other expenses.
€¢ M Co. made an advance of $100,000 to K Co. on July 1, Year 6. This loan is due on demand and requires the payment of interest at 12% per year.
€¢ M Co. rents marine equipment from K Co. During Year 6, $50,000 rent was paid and was charged to administrative expense.
€¢ In Year 4, M Co. sold land to K Co. and recorded a profit of $10,000 on the sale. K Co. held the land until October, Year 6, when it was sold to an unrelated company.
€¢ During Year 6, K Co. made sales to M Co. totalling $90,000. The December 31, Year 6, inventories of M Co. contain an unrealized profit of $5,000. The January 1,
Year 6, inventories of M Co. contained an unrealized profit of $12,000.
€¢ On January 1, Year 4, M Co. sold machinery to K Co. and recorded a profit of $13,000. The remaining useful life on that date was five years. Assume straight-line depreciation.
€¢ K Co. paid dividends of $20,000 during Year 6.
€¢ Tax allocation is to be used, assuming a 40% average corporate tax rate for this purpose.
Required:
(a) Prepare a consolidated income statement for Year 6.
(b) Now assume that M Co. is a private company, uses ASPE, and chooses to use the cost method to report its investment in K Co. Prepare M Co.€™s income statement for Year 6 under the cost method.

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M Co. КСО $350,000 $600,000 Sales Rent revenue Interest revenue Income from subsidiary Gain on land sale 50,000 6,700 30,320 Cost of goods sold Distribution expense Administrative expense Interest expense Income tax expense 637,020 334,000 80,000 147,000 1,700 20,700 583,400 53,620 8,000 408,000 225,000 70,000 74,000 6,000 7,500 382,500 $ 25,500 Profit