E 5-10 Consolidated income statement (upstream sales)

Pop Corporation purchased an 80 percent interest in Son Corporation for $1,200,000 on January 1, 2017, at which time Son’s stockholders’ equity consisted of $1,000,000 common stock and $400,000 retained earnings. The excess fair value over book value was goodwill. Comparative income statements for the two corporations for 2018 are as follows:

Pop Son Sales $2,000 $1,000 Income from Son 224 —

Cost of sales (800) (500)

Depreciation expense (260) (80)

Other expenses (180) (120)

Net income $ 984 $ 300 Dividends of Pop and Son for all of 2018 were $600,000 and $200,000, respectively. During 2017 Son sold inventory items to Pop for $160,000. This merchandise cost Son $100,000, and one-third of it remained in Pop’s December 31, 2017, inventory. During 2018 Son’s sales to Pop were $180,000. This merchandise cost Son $120,000, and one-half of it remained in Pop’s December 31, 2018, inventory.

REQuI RED: Prepare a consolidated income statement for Pop Corporation and Subsidiary for the year ended December 31, 2018.