P 10-10

[Tax] Comparative income statements (consolidated and separate tax returns)

Pop Corporation and its 100 percent–owned subsidiary, Son Corporation, are members of an affiliated group with pretax accounting incomes as follows (in thousands):

Subsidiary Preferred Stock, Consolidated Earnings per Share, and Consolidated Income Taxation 381 Pop Son Sales $9,600 $5,600 Gain on sale of land 400 —

Cost of sales (4,800) (2,400)

Operating expenses (2,800) (2,000)

Pretax accounting income $2,400 $1,200 The gain reported by Pop relates to land sold to Son during the current year. A flat 34 percent income tax rate is applicable. The land remains unsold at year-end.

REQuIRED: Prepare income statements for Pop Corporation assuming

(a) that separate income tax returns are filed and

(b) that a consolidated income tax return is filed. (Note: Pop applies the equity method as a oneline consolidation.)