Question: The income statements of Evans Company and Falcon Company for

The income statements of Evans Company and Falcon Company for the current year are shown below:
The following amounts were taken from the statement of changes in equity for the two companies:
Evans owns 80% of the outstanding common shares of Falcon, purchased at the time the latter company was organized.
Evans sells parts to Falcon at a price that is 25% above cost. Total sales from Evans to Falcon during the year were $90,000. Included in Falcon’s inventories were parts purchased from Evans amounting to $21,250 in beginning inventories and $28,750 in the ending inventory.
Falcon sells back to Evans certain finished goods, at a price that gives Falcon an average gross profit of 30% on these intercompany sales. Total sales from Falcon to Evans during the year were $177,000. Included in the inventories of Evans were finished goods acquired from Falcon amounting to $11,000 in beginning inventories and $3,000 in ending inventories.
Falcon rents an office building from Evans and pays $2,800 per month in rent. Evans has borrowed $600,000 through a series of 5% notes, of which Falcon holds $360,000 as notes receivable. Use income tax allocation at a 40% rate.
Required:
(a) Prepare a consolidated income statement with expenses classified by nature.
(b) Calculate retained earnings, beginning of year, and dividends declared for the consolidated statement of changes in equity for the current year.

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  • CreatedJune 08, 2015
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