Baxter, Inc., owns 90 percent of Wisconsin, Inc., and 20 percent of Cleveland Company. Wisconsin,

in turn, holds 60 percent of Cleveland’s outstanding stock. No excess amortization resulted

from these acquisitions. During the current year, Cleveland sold a variety of inventory items to

Wisconsin for $40,000 although the original cost was $30,000. Of this total, Wisconsin still held

$12,000 in inventory (at transfer price) at year-end.

During this same period, Wisconsin sold merchandise to Baxter for $100,000 although the

original cost was only $70,000. At year-end, $40,000 of these goods (at the transfer price) was still

on hand.

The initial value method was used to record each of these investments. None of the companies

holds any other investments.

Using the following separate income statements, determine the figures that would appear on a

consolidated income statement:

Baxter Wisconsin Cleveland

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,000,000) $ (450,000) $ (280,000)

Cost of goods sold . . . . . . . . . . . . . . . 670,000 280,000 190,000

Expenses . . . . . . . . . . . . . . . . . . . . . . . 110,000 60,000 30,000

Dividend income:

Wisconsin . . . . . . . . . . . . . . . . . . . . (36,000) –0– –0–

Cleveland . . . . . . . . . . . . . . . . . . . . (4,000) (12,000) –0–

Net income . . . . . . . . . . . . . . . . . . . . . $ (260,000) $ (122,000) $ (60,000)