The Following Information Pertains to Questions

question 9

Essay

The following information pertains to questions
X purchased 30% of Y of Y on January 1,2002 for $300,000.On the date,Y's net assets of Y had a book value of $500,000.Any Acquisition Differential on the acquisition date is to be allocated to Y's Equipment,which had a remaining useful life of 5 years from the date of acquisition.Y paid dividends of $20,000 in each year.
Y's income statements for 2002 and 2003 showed the following:
-UNI Inc.owns 30% of the outstanding voting shares of IOU Inc.UNI has significant influence over IOU.UNI's Investment in IOU Account had a balance of $500,000 on January 1,2003.Amortization of the Acquisition Differential amounted to $20,000 per year.On December 31,2003 UNI reported a Net Income of $150,000 and paid dividends in the amount of $15,000.In 2002 IOU had sold Inventory to UNI for $30,000,which was a 50% mark-up above IOU's cost.This inventory was sold to outsiders during 2003.During 2003,UNI sold inventory to IOU and recorded a profit of $30,000 on the sale.Half of this inventory was still on hand at the end of 2003.Both companies are subject to a tax rate of 30%.UNI's Income statement for 2003 showed Sales and Operating Expenses (including Income Taxes)of $800,000 and $600,000 respectively before the equity method journal entries were prepared with respect to the Investment in UNI.
Required:
Prepare an abbreviated income statement for UNI Inc.one the Investment in IOU has been correctly accounted for in accordance with GAAP.

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Definitions:

Statement of Cash Flows

A document that outlines the overall cash income from both the operational efforts and investment income of a company, and the expenditure on business activities and investment payments over a specified period.

Operating Activities

Activities related to the day-to-day functions of a business involved in producing and selling its products or services.

Indirect Method

A method used for the cash flow statement that starts with net income and adjusts for changes in account balances that affect available cash.

Accumulated Depreciation

The total amount of depreciation expense that has been recorded against a fixed asset since it was put into service.