Shown below are selected ledger accounts from the trial balance of a parent and its subsidiary as of December 31, Year 10. P Co. S Co. 

Investment in bonds of P $ – $ 38,600 

Investment in shares of S (equity method) 149,899 – 

Sales 660,000 380,000 

Interest income – 1,950 

Equity method income 117,135 – 

Gain on sale of land 7,500 – 

Common shares 300,000 100,000 

Retained earnings, beginning of year 69,000 39,000 

Bonds payable 8% 197,000 – 

Cost of sales 396,000 228,000 

Interest expense 17,500 – 

Selling and administrative expense 39,000 19,500 

Income tax expense 24,000 9,240 

Dividends 10,000 8,000.

Additional Information
P Company purchased its 90% interest in S Company in Year 1, on the date that S Company was incorporated, and has followed the equity method to account for its investment since that date.
On April 1, Year 5, land that had originally cost $15,000 was sold by S Company to P Company for $21,000. P purchased the land with the intention of developing it, but in Year 9 it decided that the location was not suitable and the land was sold to a chain of drug stores.
On January 1, Year 2, P Company issued $200,000 face value bonds due in 10Â years. The proceeds from the bond issue amounted to $190,000.
On July 1, Year 9, S Company purchased $40,000 of these bonds on the open market at a cost of $38,750. Intercompany bond holding gains (losses) are allocated between the two affiliates.
S Company had $75,000 in sales to P Company during Year 9.
Use income tax allocation at a 40% tax rate.
Required:
(a) Prepare a consolidated income statement for Year 9.
(b) Prepare a consolidated statement of retained earnings for Year 9.

Answer rating: 100% (QA)

ANSWER 1 Particulars P Company S Company Sales 660000 380000 Interest Income 1950 Equity method Income 117135 Gain on sale of Land 7500 Total Revenue ... View the full answer