On January 1, 2017, Abbey acquires 90 percent of Benjamin's outstanding shares. Financial information for these two companies for the years of 2017 and 2018 follows: 2017 2018 $(784,000) $ (890,000) 540,000 546,000 Abbey Company: Sales Operating expenses Intra-entity gross profits in ending inventory (included in above figures) Dividend income-Benjamin Company Benjamin Company: Sales Operating expenses Dividends paid (122,000) (9,000) (235, 000) (40,500) (275,000) 156,000 (10,000) (284,000) 182,000 (45,000) Assume that a tax rate of 40 percent is applicable to both companies. a. On consolidated financial statements for 2018, what are the income tax expense and the income tax currently payable if Abbey and Benjamin file a consolidated tax return as an affiliated group? b. On consolidated financial statements for 2018, what are the income tax expense and income tax currently payable if they choose to file separate returns? Answer is complete but not entirely correct. a. $ 133,200 $ 133,200 Income tax expense Income tax payable Income tax expense Income tax payable b. $ 133,200 $ 137,600 Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion of Syber's business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared. The individual financial statements for the two companies as well as consolidated totals for 2018 follow: Parson Company $ (840,000) 520,000 108,000 (80, 800) $ (292, 800) Syber Company $ (640,000) 420,000 112,000 Consolidated Totals $ (1, 352, 000) 818,000 222,500 $ (108,000) $ (311,500) 18,700 $ Sales Cost of goods sold Operating expenses Income of Syber Separate company net income Consolidated net income Net income attributable to noncontrolling interest Net income attributable to Parson Company Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Syber Company Land, buildings, and equipment Trademarks Total assets $ $ $ (292,800) (617,600) (292,800) 74,000 (836,400) 399, 200 350, 500 $ (298,000) (108,000) 34,000 $(372,000) 84,000 168,000 $ (617,600) (292, 800) 74,000 (836,400) 338,000 194,000 380,400 388,000 0 1,300,400 $ $ 272,000 660,000 32,500 $ 1,442,200 $ 524,000 S Total assets Liabilities Common stock Additional paid-in capital Noncontrolling interest in Syber Retained earnings (above) Total liabilities and equities $ 1,300,400 (290,000) (140,000) (34,000) $ 524, 000 $ (68,000 (84,000 $ 1,442,200 $ (337,600 (140,000 (34,000) (94, 200) (836, 400 $(1,442,200) (836, 400) $(1, 300, 400) 0 (372,000) $(524,000) a. b. $ C. $ $ d. Method that Parson use to account for its investment Balance of the intra-entity inventory gross profit Amount allocated to trademarks Current year intra-entity inventory sales Intra-entity inventory sales made Balance of the intra-entity liability Intra-entity gross profit was deferred from the preceding period Ending noncontrolling interest Partial equity method 11,500 37,500 128,000 Upstream $ 20,400 $ 5,500 $ (94,700) e. f. 9 h. Req A to H Req I and J>
