Arriba and its 80 percent–owned subsidiary (Abajo) reported the following figures for the year ending December 31, 2024 (credit balances indicated by parentheses). Abajo paid dividends of $30,000 during this period.

In 2023, intra-entity gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2024. In 2024, intra-entity gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2025.

a. What amounts appear for each line in a consolidated income statement? Explain your computations.

b. What income tax expense should appear on the consolidated income statement if each company files a separate return? Assume that the tax rate is 21 percent.

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Sales ... Cost of goods sold.. Operating expenses.. Dividend income.. Net income... Arriba $(600,000) 300,000 174,000 (24,000) $(150,000) Abajo $(300,000) 140,000 60,000 -0- $(100,000)