The income statements of Evans Company and Falcon Company for the current year are shown below:

The following amounts were taken from the statement of changes in equity for the two companies:

Evans owns 80% of the outstanding common shares of Falcon, purchased at the time the latter company was organized.
Evans sells parts to Falcon at a price that is 25% above cost. Total sales from Evans to Falcon during the year were $90,000. Included in Falcon€™s inventories were parts purchased from Evans amounting to $21,250 in beginning inventories and $28,750 in the ending inventory.
Falcon sells back to Evans certain finished goods, at a price that gives Falcon an average gross profit of 30% on these intercompany sales. Total sales from Falcon to Evans during the year were $177,000. Included in the inventories of Evans were finished goods acquired from Falcon amounting to $11,000 in beginning inventories and $3,000 in ending inventories.
Falcon rents an office building from Evans and pays $2,800 per month in rent. Evans has borrowed $600,000 through a series of 5% notes, of which Falcon holds $360,000 as notes receivable. Use income tax allocation at a 40% rate.
Required:
(a) Prepare a consolidated income statement with expenses classified by nature.
(b) Calculate retained earnings, beginning of year, and dividends declared for the consolidated statement of changes in equity for the current year.

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Evans $450,000 $600,000 Falcon Sales revenues Dividend revenues Rental revenues Interest revenues 32,000 33,600 Raw materials and finished goods purchased Changes in inventory Other expenses Interest expense Income taxes 18,000 515,600 618,000 268,000 328,000 25,000 104,000 146,000 20,000 30,000 31,700 43,500 453,700 542,500 61,900 75,500 Profit Evans Falcon Retained earnings, beginning of year Dividends declared $632,000 $348,000 40,000 30,000