Dills Company purchased an 80% interest in the common stock of Sarada Company for $140,000 on January 1, 20X7. On this date the book value of Sarada's net identifiable assets totaled $100,000. Any excess was attributed to a patent with a 10-year life.
During 20X9, Dills Company and Sarada Company reported the following internally generated income before taxes:
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Dills Co.
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Sarada Co.
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Sales
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$300,000
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$120,000
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Cost of goods sold
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(200,000)
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(90,000)
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Gain on machine
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10,000
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--
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Expenses
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(40,000)
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(20,000)
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Income before taxes
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$ 70,000
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$ 10,000
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Sarada Company routinely sells goods to Dills Company. This year those sales amounted to $60,000. Dills Company inventories included intercompany goods of $30,000 at the beginning of the year and $12,000 at the end of the year. Sarada Company sells goods to Dills Company at a gross profit of 16.67%.
On January 1, 20X9 Dills Company sold a new machine to Sarada Company, for $40,000. The cost of the machine was $30,000. It has a 5-year life.
The firms file separate tax returns. Both are subject to a 30% tax rate. Dills Company receives an 80% dividend deduction.
Required:
Prepare a consolidated income statement for 20X9. Include income distribution for both firms.