Arriba and its 80 percent–owned subsidiary (Abajo) reported the following figures for the year ending December 31, 2021 (credit balances indicated by parentheses). Abajo paid dividends of $30,000 during this period.

In 2020, intra-entity gross profits of $30,000 on upstream transfers of $90,000 were deferred into 2021. In 2021 intra-entity gross profits of $40,000 on upstream transfers of $110,000 were deferred into 2022.

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