P 10-15

[Tax] Consolidated income statement (separate returns and intercompany equipment)

The pretax operating incomes of Pop Corporation and Son Corporation, its 70 percent–owned subsidiary, for 2016 are as follows (in thousands):

Pop Son Sales $8,000 $4,000 Gain on equipment 500 —

Cost of sales (5,000) (2,000)

Other expenses (2,100) (1,200)

Pretax income (excluding Pop’s income from Son)

$1,400 $ 800 ADDITIONAL INFORMATION 1. Pop received $280,000 dividends from Son during 2016.

2. Goodwill from Pop’s investment in Son is not amortized.

3. Pop sold equipment to Son at a gain of $500,000 on January 1, 2016. Son is depreciating the equipment at a rate of 20 percent per year.

4. A flat 34 percent tax rate is applicable.

5. Pop provides for income taxes on undistributed income from Son.

REQuIRED 1. Determine the separate income tax expenses for Pop and Son.

2. Determine Pop’s income from Son on an equity basis.

3. Prepare a consolidated income statement for Pop Corporation and Subsidiary for the year ended December 31, 2016.