Several years ago, Revnon Co. acquired a 60% interest in Aumets Inc. at book value. During 2012 and 2013, intragroup sales of merchandise amounted to $120,000 and $180,000. On December 31, 2012, and December 31, 2013, one third of each year€™s intragroup sales remained in that year€™s ending inventory. Intragroup sales were made at the same rate of gross margin as sales to non-affiliates. January 1, 2012, inventories contained no unrealized intragroup profits.

The following data are taken from the financial statements of the two companies for 2012 and 2013:

The tax rate for both companies is 40%.
Required
Calculate Revnon€™s share of consolidated net income for 2012 and 2013 assuming:
(a) The intragroup sales were upstream.
(b) The intragroup sales were downstream.

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Revnon Co Aumets Inc. 2012 $1,500,000 1,000,000 2013 $2,200,000 1,540,000 360,000 2012 $900,000 540,000 160,000 2013 $1,200,000 Sales Cost of sales Expenses 780,000 170,000 300,000