Consolidated income statement (incomplete equity method, downstream sales)
The separate income statements of Pea Corporation and its 90 percent owned subsidiary, Sea Corporation, for 2011 are summarized as follows (in thousands):
|
Pea |
Sea |
|
|
Sales |
$1,000 |
$600 |
|
Income from Sea |
90 |
— |
|
Gain on equipment |
40 |
— |
|
Cost of sales |
(600) |
(400) |
|
Other expenses |
(200) |
(100 ) |
|
Net income |
$ 330 |
$100 |
Investigation reveals that the effects of certain intercompany transactions are not included in Pea’s income from Sea. Information about those intercompany transactions follows:
1. Inventories—Sales of inventory items from Pea to Sea are summarized as follows:
|
2010 |
2011 |
|
|
Intercompany sales |
$100,000 |
$150,000 |
|
Cost of intercompany sales |
60,000 |
90,000 |
|
Percentage unsold at year end |
50% |
40% |
2. Plant assets—Pea sold equipment with a book value of $60,000 to Sea for $100,000 on January 1, 2011. Sea depreciates the equipment on a straight line basis (no scrap) over a four year period.
REQUIRED
1. Determine the correct amount of Pea’s income from Sea for 2011.
2. Prepare a consolidated income statement for Pea Corporation and Subsidiary for 2011.