a) With Lake's 60% controlling interest in Boxwood, the total income tax expense reported on a consolidated income statement for this period is $99,023 ($471,540 x 21%).
b) With Lake's 60% controlling interest in Boxwood, the total amount of income taxes payable for the current year is $101,400 ($363,000 + $120,000) x 21%.
c) With Lake's 90% controlling interest in Boxwood, the amount of income tax expense to be reported on the consolidated income statement for the year is $97,820 ($465,810 x 21%).
<h3>What is controlling interest?</h3>
Controlling interest exists when a company or an individual owns more than 50% of the shareholdings of another company. This gives the investor shareholder a majority voting share to influence decisions of the subsidiary company.
<h3>Data and Calculations:</h3>
Lake Boxwood
Income reported $363,000 $120,000
Dividend paid 60,000 5,000
Dividend income 3,000 ($5,000 x 60%)
Increase in intra-entity gross profits = $19,100 ($41,500 - $22,400).
Excludable intra-entity gross profits = $11,460 ($19,100 x 60%).
Consolidated Income = $471,540 ($363,000 + $120,000 - $11,460)
Excludable intra-entity gross profits = $17,190 ($19,100 x 90%).
Consolidated Income = $465,810 ($363,000 + $120,000 - $17,190)
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