4. Company P is considering investing in Company S, but is unsure about what level of ownership should be undertaken. Company P and Company S have the following reported incomes;

	Company P	Company S
Sales	$1,000,000	$500,000
Cost of Goods Sold	300,000	200,000
Gross Profit	$700,000	$300,000
Selling and Administrative Expenses	220,000	100,000
Net Income	$480,000	$200,000

Company S paid $20,000 in cash dividends to its investors. Prepare a pro forma income statement for Company P that compares income under 15%, 40%, 90%, and 100% ownership levels.

Answers:

Company P
Pro Forma Income Statement
Ownership Levels
	15%	40%	90%	100%
Sales
Cost of goods sold
Gross profit
Selling and administrative expenses
Operating income
Dividend income
Investment income
Net income
Non-controlling interest
Controlling interest