The following table shows selected amounts from the separate financial statement
ID: 2573408 • Letter: T
Question
The following table shows selected amounts from the separate financial statements of a parent company (unconsolidated) and one of its subsidiaries. Note that 1) the parent company owns 100% of the subsidiary; 2) During the year the parent company sold some inventory to the subsidiary for $1,000 in scenario I and for $1,700 in scenario II. It had cost the parent company $1,000. The subsidiary further sold the inventory to an unrelated party for $2,000. 3) Located in two different countries, the parent company and the subsidiary have different income tax rates. Specifically, the rate for the parent company is 25% and the rate for the subsidiary is 50%. 4) Companies do not pay tax if their income is equal to or less than zero.
Please calculate and fill the cells with question marks.
Scenario I
Scenario II
Parent Company ($)
Subsidiary ($)
Parent Company ($)
Subsidiary ($)
Sales
1,000
2,000
1,700
2,000
Cost of goods sold
1,000
1,000
1,000
1,700
Gross profit
?
?
?
?
Operating expense
100
100
100
100
Taxable income
?
?
?
?
Income tax
?
?
?
?
Net Income
?
?
?
?
Scenario I
Scenario II
Parent Company ($)
Subsidiary ($)
Parent Company ($)
Subsidiary ($)
Sales
1,000
2,000
1,700
2,000
Cost of goods sold
1,000
1,000
1,000
1,700
Gross profit
?
?
?
?
Operating expense
100
100
100
100
Taxable income
?
?
?
?
Income tax
?
?
?
?
Net Income
?
?
?
?
Explanation / Answer
Scenario I Scenario II Parent Company ($) Subsidiary ($) Parent Company ($) Subsidiary ($) Sales 1000 2000 1700 2000 Cost of goods sold 1000 1000 1000 1700 Gross profit 0 1000 700 300 Operating expense 100 100 100 100 Taxable income -100 900 600 200 Income tax 0 450 150 100 Net income -100 450 450 100
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