Dunker Company purchases an 80% interest in the common stock of Fennig Company for $850,000 on January

Question:

Dunker Company purchases an 80% interest in the common stock of Fennig Company for $850,000 on January 1, 2017. The fair value of the NCI is $212,500. At the time of the purchase, the total stockholdersâ€™ equity of Fennig is $968,750.

The price paid is $75,000 in excess of the book value of the controlling portion of Fennig equity. The excess is attributed to a patent with a 10-year life. During 2019, Dunker Company and Fennig Company report the following internally generated income before taxes:

Fennig Company sells goods to Dunker Company for $50,000. Dunker Company has $20,000 of Fennig Companyâ€™s goods in its beginning inventory and $6,000 of Fennigâ€™s goods in it sending inventory. Fennig Company sells goods to Dunker Company ata gross profit of 40%.
Dunker Company sells a new machine to Fennig Company on January 1, 2019, for $30,000. The machine has a 5-year life, and its cost is $25,000. The companies file separate tax returns. Both are subject to a 30% tax rate. Dunker receives an 80% dividend deduction.
Required
Prepare a consolidated income statement for 2019. Include income distribution schedules for both companies.

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