Consolidated income statement (downstream gain on sale of equipment)
Pan Corporation and its 70 percent owned subsidiary, Sum Corporation, have pretax operating incomes for 2011 as follows (in thousands):
|
Pan |
Sum |
|
|
Sales |
$8,000 |
$4,000 |
|
Gain on equipment |
200 |
— |
|
Cost of sales |
(5,000) |
(2,000) |
|
Other expenses |
(1,800 ) |
(1,200 ) |
|
Pretax income |
$1,400 |
$ 800 |
Pan received $280,000 dividends from Sum during 2011. A previously unrecorded patent from Pan’s investment in Sum is being amortized at a rate of $50,000 per year (the same time horizon is used for both book and tax purposes).
On January 1, 2011, Pan sold equipment to Sum at a $200,000 gain. Sum is depreciating the equipment at a rate of 20 percent per year. A flat 34 percent tax rate is applicable to both companies.
REQUIRED: Prepare a consolidated income statement for Pan Corporation and Subsidiary for 2011. (Assume no deferred tax balance on January 1, 2011.)