P owns 65% of S. The 2021 income statements of both companies are shown below.

	P	S
Revenues	$80,000	$60,000
Miscellaneous Expenses	$20,000	$20,000
Depreciation Expense	$30,000	$15,000
Net Income Before Tax	$30,000	$ 25,000

On January 1, 2021, S sold equipment to P at a profit of $8,000 (before tax).

Question 1

In addition to the information above, you were advised that on the same day P sold machinery to S at a profit of $5,000. Assume both the equipment and machinery had a remaining useful life of 20 years, and was being depreciated straight line with no residual value. Calculate the 2021 Consolidated Net Income (after tax) for S. Assume a tax rate of 30%.

Question 2

In addition to the information above, you were advised that on the same day P sold machinery to S at a profit of $5,000. Assume both the equipment and machinery had a remaining useful life of 20 years, and was being depreciated straight line with no residual value. Calculate the 2021 Consolidated Net Income (after tax) for P. Assume a tax rate of 40%.

Answer rating: 100% (QA)

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