In: Accounting
Parson Company acquired an 80 percent interest in Syber Company on January 1, 2017. Any portion of Syber's business fair value in excess of its corresponding book value was assigned to trademarks. This intangible asset has subsequently undergone annual amortization based on a 15-year life. Over the past two years, regular intra-entity inventory sales transpired between the two companies. No payment has yet been made on the latest transfer. All dividends are paid in the same period as declared.
The individual financial statements for the two companies as well as consolidated totals for 2018 follow:
Parson Company |
Syber Company |
Consolidated Totals |
|||||||||
Sales | $ | (980,000 | ) | $ | (780,000 | ) | $ | (1,604,000 | ) | ||
Cost of goods sold | 590,000 | 490,000 | 937,000 | ||||||||
Operating expenses | 136,000 | 154,000 | 292,500 | ||||||||
Income of Syber | (101,800 | ) | 0 | 0 | |||||||
Separate company net income | $ | (355,800 | ) | $ | (136,000 | ) | |||||
Consolidated net income | $ | (374,500 | ) | ||||||||
Net income attributable to noncontrolling interest | 18,700 | ||||||||||
Net income attributable to Parson Company | $ | (355,800 | ) | ||||||||
Retained earnings, 1/1/18 | $ | (638,600 | ) | $ | (326,000 | ) | $ | (638,600 | ) | ||
Net income (above) | (355,800 | ) | (136,000 | ) | (355,800 | ) | |||||
Dividends declared | 67,000 | 48,000 | 67,000 | ||||||||
Retained earnings, 12/31/18 | $ | (927,400 | ) | $ | (414,000 | ) | $ | (927,400 | ) | ||
Cash and receivables | $ | 478,000 | $ | 98,000 | $ | 550,400 | |||||
Inventory | 208,000 | 196,000 | 385,500 | ||||||||
Investment in Syber Company | 443,400 | 0 | 0 | ||||||||
Land, buildings, and equipment | 416,000 | 314,000 | 730,000 | ||||||||
Trademarks | 0 | 0 | 32,500 | ||||||||
Total assets | $ | 1,545,400 | $ | 608,000 | $ | 1,698,400 | |||||
Liabilities | $ | (360,000 | ) | $ | (117,000 | ) | $ | (417,400 | ) | ||
Common stock | (210,000 | ) | (77,000 | ) | (210,000 | ) | |||||
Additional paid-in capital | (48,000 | ) | 0 | (48,000 | ) | ||||||
Noncontrolling interest in Syber | 0 | 0 | (95,600 | ) | |||||||
Retained earnings (above) | (927,400 | ) | (414,000 | ) | (927,400 | ) | |||||
Total liabilities and equities | $ | (1,545,400 | ) | $ | (608,000 | ) | $ | (1,698,400 | ) | ||
i. With a tax rate of 40 percent, what income tax journal entry
is recorded if the companies prepare a consolidated tax
return?
j. With a tax rate of 40 percent, what income tax journal entry is
recorded if these two companies prepare separate tax returns?
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
i. Income tax journal entry, if the companies prepare a consolidated tax return | ||
Income tax expenses | $149,800 | |
Income tax payable | $149,800 | |
Income tax expenses = Consolidated net income x tax rate | ||
= $374500 x 40% | ||
= $149800 | ||
j. Income tax journal entry, if the two companies prepare separate tax returns | ||
Parson company | ||
Income tax expenses | $101,600 | |
Income tax payable | $101,600 | |
Income tax expenses =(Net income - Income of syber) x tax rate | ||
= ($355800-$101800) x 40% | ||
= $254000 x 40% | ||
= $101600 | ||
Syber company | ||||
Income tax expenses | $48,200 | |||
Income tax payable | $48,200 | |||
Income tax expenses =(Net income-Amortization of trademarks-Profit on intercompany transaction) x tax rate | ||||
= ($136000-$2500-$13000) x 40% | ||||
= $120500 x 40% | ||||
= $48200 |