On January 1, Year 8, Fazli Co. acquired all of the common shares of Gervais. The following transactions occurred in January and February, Year 8:

• On January 10, Gervais purchased $10,400 of inventory from outsiders.
• On January 20, Gervais sold $6,200 of this inventory to Fazli for $7,440, which represents a markup of 20% over cost.
• On January 30, Fazli sold $5,250 of the inventory purchased from Gervais to outsiders for $6,825, which represents a markup of 30% over cost.
• On February 10, Gervais purchased 12,200 of inventory from outsiders.
• On February 20, Gervais sold $9,200 of inventory to Fazli for $11,040, which represents a markup of 20% over cost.
• On February 30, Fazli sold $8,760 of inventory purchased from Gervais to outsiders for $10,950, which represents a markup of 25% over cost.

Fazli uses the cost method to account for its investment in Gervais. Both companies pay income tax at the rate of 40%. Gervais did not pay any dividends in Year 8.

Required:

(a) Prepare income statements for January and February for Fazli, Gervais, and Consolidation. Break down cost of sales into its three components. (Leave no cells blank - be certain to enter "0" wherever required. Values in the fourth column (Adjust column) that are to be deducted should be indicated with a minus sign. Input all other amounts as positive values. Round your final answers to nearest whole dollars. Omit $ sign in your response.)

Income Statements For January Year 8
	Fazli	Gervais	Adjust	Consolidation
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest	$	$	$	$
Cost of sales
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest
Cost of sales
(Click to select) Gross margin Gross loss Net income Net loss
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Gross margin Gross loss Net income Net loss	$	$		$
Attributable to:
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders				$
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest				$

Income Statements For February Year 8
	Fazli	Gervais	Adjust	Consolidation
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest	$	$	$	$
Cost of sales
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest
Cost of sales
(Click to select) Gross margin Gross loss Net income Net loss
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders
(Click to select) Gross margin Gross loss Net income Net loss	$	$		$
Attributable to:
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Fazlis shareholders				$
(Click to select) Sales Beginning inventory Purchases Goods available Ending inventory Income tax expense Non-controlling interest				$

(b) Now assume that Fazli uses the equity method to account for its investment in Gervais. What accounts would change on the three statements in January and what would be the account balance? (Omit $ sign in your response.)

(Click to select) Equity method income from subsidiary Consolidated net income Non-controlling interest Fazlis shareholders $

(c) Now assume that Fazli only owns 80% of the common shares of Gervais and uses the cost method to account for its investment in Gervais. What accounts would change (as compared to part (a)) on the three statements in January and what would be the account balance? (Omit $ sign in your response.)

(Click to select) Equity method income from subsidiary Consolidated net income Non-controlling interest Fazlis shareholders None $

(d) Now assume that Gervais was the parent, Fazli was the subsidiary, and Gervais owned 80% of Fazli. How would this change the allocation of consolidated net income for January? (Omit $ sign in your response.)

(Click to select) Equity method income from subsidiary Consolidated net income Non-controlling interest Fazlis shareholders No change $

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