McDuff Company Owns 100 Percent of the Stock of Goode

question 54

Essay

McDuff Company owns 100 percent of the stock of Goode Company.The separate income statements for the two companies for the year ended December 31,2010,are as follows:
$$\begin{array} { |l c r |} \hline & \text { Mc Duff Company } & \text { Goode Company } \\\text { Sales } & \$ 800,000 & \$ 500,000 \\\text { Cost of goods 5old } & \underline{650,000} &\underline{ 396,000} \\ \text { Gross margin } & \$ 150,000 & \$ 104,000 \\\text { Operating expenses, including } & ( 86,000 ) & ( 48,000 ) \\\text { Rental revenue } & \$ 56,000 & - \\\text { Income taxes expense } &\underline{ ( 44,000 ) }&\underline{ ( 22,000 )} \\\text { Net income } &\underline{ \$ 76,000} & \underline{\$34,000} \\\hline\end{array}$$ McDuff Company sold merchandise to Goode Company for $120,000,which in turn was sold by Goode Company to its customers.Goode Company paid rentals of $18,000 to McDuff Company on a long-term lease.Using the partially completed form that follows,prepare a consolidated income statement for the year ended December 31,2010.
$$\begin{array} {c}{ \text { MrDuff Company } } \\{ \text { Consolidated Income statement } } \\\text { For the Year Ended December 31, 2010 } \\\begin{array} { | l | l | } \hline \text { Sales } & \\\hline \text { Cost af goods sold } &\quad\quad\quad\quad\quad\quad\quad \\\hline \text { Gross margin } & \\\hline \text { Operating expenses } & \\\hline \text { Rental revenue } & \\\hline \text { Income taxeo expense } & \\\hline \text { Net income } & \\\hline\end{array}\end{array}$$

Understand the difference between net income and comprehensive income.

Identify and correct errors in previously issued financial statements.

Recognize the legal and procedural aspects of declaring dividends.

Understand the concept of equilibrium in a market and how it is determined by the forces of supply and demand.

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