Journal entries and consolidated income statement (downstream sale of building)
Sal is a 90 percent owned subsidiary of Pig Corporation, acquired at book value several years ago. Comparative separate company income statements for the affiliates for 2011 are as follows:
|
Pig Corporation |
Sal Corporation |
|
|
Sales |
$1,500,000 |
$700,000 |
|
Income from Sal |
108,000 |
— |
|
Gain on building |
30,000 |
— |
|
Income credits |
1,638,000 |
700,000 |
|
Cost of sales |
1,000,000 |
400,000 |
|
Operating expenses |
300,000 |
150,000 |
|
Income debits |
1,300,000 |
550,000 |
|
Net income |
$ 338,000 |
$150,000 |
On January 5, 2011, Pig sold a building with a 10 year remaining useful life to Sal at a gain of $30,000. Sal paid dividends of $100,000 during 2011.
REQUIRED
1. Reconstruct the journal entries made by Pig during 2011 to account for its investment in Sal. Explanations of the journal entries are required.
2. Prepare a consolidated income statement for Pig Corporation and Subsidiary for 2011.