Question 5 (10 marks) Pearl Company owns 60% of the voting shares of Jasper Inc. which it acquired on the latter's incorporation on January 1, 2012, and accounts for its investment using the cost method. The Income Statements for the two companies for the year ended December 31, 2012, are as follows: Sales Dividend income Cost of sales Other expenses Income before tax Income taxes Pearl Company Jasper Inc. $ 3,200,000 60,000 3,260,000 $ 1,200,000 1,200,000 2,400,000 900,000 300,000 100,000 2,700,000 1,000,000 560,000 200,000 200,000 80,000 Net income for the year $ 360,000 $ 120,000 The only intercompany transaction during 2012 was a sale of inventory from Pearl Company to Jasper Inc. for $400,000. Half of this was still in Jasper's inventory at December 31, 2012. Pearl Company earned a gross profit of 25% on the sale. Jasper Inc. paid dividends of $100,000 during 2012. Both companies pay income tax at a rate of 40%. Question 5 (10 marks) Pearl Company owns 60% of the voting shares of Jasper Inc. which it acquired on the latter's incorporation on January 1, 2012, and accounts for its investment using the cost method. The Income Statements for the two companies for the year ended December 31, 2012, are as follows: Sales Dividend income Cost of sales Other expenses Income before tax Income taxes Pearl Company Jasper Inc. $ 3,200,000 60,000 3,260,000 $ 1,200,000 1,200,000 2,400,000 900,000 300,000 100,000 2,700,000 1,000,000 560,000 200,000 200,000 80,000 Net income for the year $ 360,000 $ 120,000 The only intercompany transaction during 2012 was a sale of inventory from Pearl Company to Jasper Inc. for $400,000. Half of this was still in Jasper's inventory at December 31, 2012. Pearl Company earned a gross profit of 25% on the sale. Jasper Inc. paid dividends of $100,000 during 2012. Both companies pay income tax at a rate of 40%.