determine 2011 income tax currently payable and income tax expense for pan and sir 571836

Computations and income statement (upstream sales)

Pan Corporation paid $577,500 cash for a 70 percent interest in Sir Corporation’s outstanding common stock on January 2, 2011, when the equity of Sir consisted of $500,000 common stock and $300,000 retained earnings. The excess fair value is due to goodwill. In December 2011, Sir sold inventory items to Pan at a gross profit of $50,000 (selling price $120,000 and cost $70,000), and all these items were included in Pan’s inventory at December 31, 2011. Sir paid dividends of $50,000 in 2011, and an 80 percent dividends received deduction is applicable. A flat 34 percent income tax rate is applicable to both companies. Separate pretax incomes of Pan and Sir for 2011 are as follows (in thousands):

REQUIRED

1. Determine 2011 income tax currently payable and income tax expense for Pan and Sir.

2. Calculate Pan’s income from Sir for 2011.

3. Prepare a consolidated income statement for Pan and Sir for 2011.