Question
Jay Inc. owns 80% of Tesla Inc. and uses the cost method to account for its investment. The 2020 income statements of both companies are
Jay Inc. owns 80% of Tesla Inc. and uses the cost method to account for its investment. The 2020 income statements of both companies are shown below.
| Jay | Tesla | |
| Gross Profit | $100,000 | $50,000 |
| Miscellaneous Revenues/Losses | $30,000 | $20,000 |
| Depreciation Expense | $20,000 | $15,000 |
| Income Tax Expense | $20,000 | $ 6,000 |
| Net Income | $30,000 | $ 9,000 |
On January 1, 2020, Tesla sold equipment to Jay at a profit of $3,000. The equipment had a remaining useful life of twenty years on that date. Both companies are subject to an effective tax rate of 40%. The amount of gross profit appearing on Jay's 2020 Consolidated Income Statement would be:
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Financial Accounting The Basics
Authors: Ilias Basioudis
1st Edition
1138605514, 9781138605510
