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On January 1, Year 4, Goodkey Co. acquired all of the common shares of Jingya. The condensed income statements for the two companies for January,

On January 1, Year 4, Goodkey Co. acquired all of the common shares of Jingya. The condensed income statements for the two companies for January, Year 5, were as follows:

Goodkey Jingya
Sales $ 11,100,000 $ 6,110,000
Gain on sale of equipment 262,000
Other income 910,000 61,000
12,010,000 6,433,000
Depreciation expense 560,000 191,000
Other expenses 6,710,000 4,410,000
Income tax expense 2,013,000 549,600
9,283,000 5,150,600
Net income $ 2,727,000 $ 1,282,400

The following transactions occurred in January, Year 5, and are properly reflected in the income statements above:

On January 1, Year 5, Jingya sold equipment to Goodkey for $1,110,000 and reported a gain of $262,000. On this date, the equipment had a remaining useful life of four years.

On January 31, Year 5, Jingya paid a dividend of $710,000.

Goodkey uses the cost method to account for its investment in Jingya. Both companies pay income tax at the rate of 40%.

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