Question

Shown below are selected ledger accounts from the trial balance of a parent and its subsidiary as of December 31, Year 9.
Additional Information
• P Company purchased its 90% interest in S Company in Year 1, 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 5, land that had originally cost $15,000 was sold by S Company to P Company for $21,000. P purchased the land with the intention of developing it, but in Year 9 it decided that the location was not suitable and the land was sold to a chain of drug stores.
• On January 1, Year 2, P Company issued $200,000 face value bonds due in 10 years. The proceeds from the bond issue amounted to $190,000.
• On July 1, Year 9, S Company purchased $40,000 of these bonds on the open market at a cost of $38,750. Intercompany bondholding gains (losses) are allocated between the two affiliates.
• S Company had $75,000 in sales to P Company during Year 9.
• Use income tax allocation at a 40% tax rate.
Required:
(a) Prepare a consolidated income statement for Year 9.
(b) Prepare a consolidated statement of retained earnings for Year 9.


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  • CreatedJune 08, 2015
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