On January 1, Year 4, Goodkey Co. acquired all of the common shares of Jingya. The condensed income statements for the two companies for January Year 5, were as follows:

The following transactions occurred in January, Year 5, and are properly reflected in the income statements above:

• On January 1, Year 5, Jingya sold equipment to Goodkey for $1,000,000 and reported a gain of $240,000. On this date, the equipment had a remaining useful life of four years.

• On January 31, Year 5, Jingya paid a dividend of $600,000.

Goodkey uses the cost method to account for its investment in Jingya. Both companies pay income tax at the rate of 40%. 

Required:

(a) Prepare a consolidated income statement for January Year 5.

(b) Now assume that Goodkey uses the equity method to account for its investment in Jingya. What accounts would change on the three income statements (Goodkey, Jingya, and consolidated) in January Year 5, and what would be the account balances?

(c) Now assume that Goodkey only owns 80% of the common shares of Jingya and uses the cost method to account for its investment in Jingya. What accounts would change (as compared to part (a)) on the three income statements (Goodkey, Jingya, and consolidated) in January Year 5, and what would be the account balances?

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Goodkey Jingya $10,000,000 Sales Gain on sale of equipment Other income $6,000,000 240,000 800,000 10,800,000 50,000 6,290,000 Depreciation expense Other expenses Income tax expense 450,000 180,000 6,600,000 4,300,000 1,220,000 719,000 5,199,000 $1,091,000 8,270,000 Net income $ 2,530,000