Preparing a consolidated income statement For the year ended December 31, 20Y2, the operating results of Paley Corporation and its wholly owned subsidiary, Sims Enterprises, are as follows: Paley Sims Corporation Enterprises Sales 3,200,000 900,000 Cost of goods sold (1,900,000) (550,000) Gross profit 1,300,000 350,000 Operating expenses (750,000) (125,000) Operating income 550,000 225,000 Interest revenue 20,000 Interest expense Net income (15,000) 210,000 570,000 During 2012, Sims Enterprises sold and received payment of $80,000 for merchandise that was purchased by Paley Corporation. The merchandise sold to Paley cost Sims Enterprises $45,000. Paley Corporation sold the merchandise to another (nonaffiliated) company for $110,000. a. Prepare a consolidated income statement for Paley Corporation and Subsidiary. Hint: Eliminate the effect of the intercompany sale. a. Prepare a consolidated income statement for Paley Corporation and Subsidiary. Hint: Eliminate the effect of the intercompany sale. Paley Corporation and Subsidiary Sales Consolidated Income Statement For the Year Ended December 31, 20Y2 Cost of goods sold Gross profit Operating expenses Operating income Other revenue and expense: Interest revenue Interest expense Net income b. Assume that as of December 31, 2012, Paley Corporation had not sold the merchandise purchased from Sims Enterprises. How would this affect the preparation of the consolidated financial statements? Intercompany sales of $ Corporation should recorded by Sims Enterprises and the related inventory of $ be eliminated. In addition, cost of goods sold of $ recorded by Paley recorded by Sims should be by $ eliminated, and inventory should be increased The result of these eliminations is that the consolidated financial statements will reflect no intercompany sales and the merchandise will still be shown in inventory as $ c. Assume that $15,000 of the interest revenue that Paley Corporation reported on its income statement was from a note payable from Sims Enterprises. Sims paid the note payable at its maturity in 2012. How would the loan affect the preparation of the consolidated financial statements? Interest revenue of $15,000 recorded by Paley Corporation and the related interest expense recorded by Sims Enterprises should eliminated. Since Sims paid the note payable at its maturity in 2012, no elimination note payable by Sims and the related note receivable by Paley Corporation. is necessary for the