Preparing a consolidated income statement

For the year ended December $31,20$Y$2,$ the operating results of Paley Corporation and its wholly owned subsidiary, Sims Enterprises, are as follows:

Line Item Description Paley

Corporation Sims

Enterprises

Sales $3,200,000900,000$

Cost of goods sold $(1,900,000)(550,000)$

Gross profit $1,300,000350,000$

Operating expenses $(750,000)(125,000)$

Operating income $550,000225,000$

Interest revenue $20,000$

Interest expense $(15,000)$

Net income $570,000210,000$

During $20$Y$2,$ 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.

Paley Corporation and Subsidiary

Consolidated Income Statement

For the Year Ended December $31,20$Y$2$

Line Item Description Amount

$fill in the blank $2$

fill in the blank $4$

$fill in the blank $6$

fill in the blank $8$

$fill in the blank $10$

Other revenue and expense:

fill in the blank $12$

fill in the blank $14$

$fill in the blank $16$

b$.$ Assume that as of December $31,20$Y$2,$ 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 fill in the blank $1$ of $9$$

recorded by Sims Enterprises and the related inventory of fill in the blank $2$ of $9$$

recorded by Paley Corporation fill in the blank $3$ of $9$

be eliminated. In addition, cost of goods sold of fill in the blank $4$ of $9$$

recorded by Sims fill in the blank $5$ of $9$

be eliminated, and inventory should be fill in the blank $6$ of $9$

by fill in the blank $7$ of $9$$

$.$

The result of these fill in the blank $8$ of $9$

is that the consolidated financial statements will reflect no intercompany sales and the merchandise will still be shown in inventory as fill in the blank $9$ of $9$$

$.$

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 $20$Y$2.$ 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 fill in the blank $1$ of $4$

eliminated. Since Sims paid the note payable at its maturity in $20$Y$2,$ fill in the blank $2$ of $4$

is necessary for the fill in the blank $3$ of $4$

by Sims and the related fill in the blank $4$ of $4$

by Paley Corporation.