E 10-16

[Tax] Journal entries for unrealized profit with separate and consolidated tax returns Sun Corporation is a 100 percent–owned subsidiary of Pam Corporation. During the current year, Pam sold merchandise that cost $200,000 to Sun for $400,000. A 34 percent income tax rate is applicable, and 80 percent of the merchandise remains unsold by Sun at year-end.

REQuIRED 1. Prepare comparative one-line consolidation entries relating to the unrealized profit when separate and consolidated income tax returns are filed.

2. Prepare comparative consolidation workpaper entries in general journal form relating to the intercompany sales transaction and the related income tax effect when separate and consolidated income tax returns are filed.