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On January 1, 20X7, Marina Co. acquired 80% of the ordinary voting shares of Ships Inc. Both entities have a December 31 fiscal year end.

  1. On January 1, 20X7, Marina Co. acquired 80% of the ordinary voting shares of Ships Inc. Both entities have a December 31 fiscal year end. During 20X7, Marina paid $225,000 to Ships as management fees, and Ships loaned $144,000 to Marina.

Which of the following statements describes the impact on the consolidated Income Statement?

  1. $225,000 in management fees will be added to revenues as an adjustment on the consolidated Income Statement.
  2. Consolidated net income will be less than the sum of the parent and subsidiarys net income due to the intercompany transactions.
  3. Consolidated retained earnings attributable to the parent will be $180,000 higher than would be the case had the management fees not been charged.
  4. Consolidated expenses will be less than the sum of the parent and subsidiarys expenses due to the intercompany transactions.

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