The income statements for Paste Company and its subsidiaries, Waste Company and Baste Company, were prepared for the year ended December 31. Year 9, and are shown below: Paste Waste Baste Income Sales $ 450,000 $270,000 $190,000 Dividend 43.750 Rent 130,000 Interest 10.000 Total income 503.750 400,000 190.000 Expenses Cost of sales 300,000 163.000 145,000 General and administrative 93.000 48,000 29.000 Interest 10,000 Income tax 27.000 75,000 7,000 Total expenses 420.000 296,000 181.000 Profit $ 83.750 $104,000 Is 9.000 . Additional Information Paste purchased its 80% interest in Waste on January 1, Year 4. On this date, Waste had a retained earnings balance of $40,000, and the acquisition differential amounting to $15,000 was allocated entirely to plant with an estimated remaining life of eight years. The plant is used exclusively for manufacturing goods for resale. Paste purchased its 75% interest in Baste on December 31, Year 6. On this date, Baste had a retained earnings balance of $80,000. The acquisition differential amounting to $19,000 was allocated to goodwill; however, . BE . Up Paste purchased its 75% interest in Baste on December 31. Year 6. On this date, Baste had a retained earnings balance of $80,000. The acquisition differential amounting to $19.000 was allocated to goodwill; however, because Baste had failed to report adequate profits, the goodwill was entirely written off for consolidated pur poses by the end of Year 8. Paste has established a policy that any intercompany sales will be made at a gross profit rate of 30% . On January 1. Year 9, the inventory of Paste contained goods purchased from Waste for $15,000. During Year 9. the following intercompany sales took place: Paste to Waste $ 90,000 Waste to Baste 170,000 Baste to Paste 150.000 . On December 31, Year 9, the inventories of each of the three companies contained items purchased on an inter company basis in the following amounts: Paste from Baste Waste from Paste Baste from Waste 4 PC $60,000 22.000 60,000 CH Da D . In addition to its merchandising activities. Waste is in the office equipment rental business. Both Paste and Baste rent office equipment from Waste General and administrative expenses for Paste and Baste include rent expense of $25.000 and $14.000, respectively. During Year 6, Waste paid $10,000 interest to Paste for intercompany advances All of Paste's dividend revenue pertains to its investments in Waste and Baste. . . CHAPTER 6 Intercompany Inventory and Land Profits Retained earnings at December 31. Year 9, for Paste. Was I and Baste were $703,750, 8146,000, and $79,000, respectively. Paste Company uses the cost method to account for its investments, and uses tax allocation at a rate of 40% when it prepares consolidated financial statements. Required (a) Prepare a consolidated income statement for Year 9
