To divide the business, Jean transfers the cookware assets to Cookware Corporation in exchange for all of Cookware stock. Jean transfers the home appliance assets to Home Appliance Corporation in exchange for all of Home Appliance stock. Jean transfers the Cookware stock to Bill in exchange for all of his Jean stock. Jean transfers the Home Appliance stock to Bob in exchange for all of his Jean stock. Finally, Jean liquidates with its remaining cash used to pay off its liabilities.
a. What gain or loss is recognized on the transfer of the Jean assets to Cookware and Home Appliance? What basis do the two corporations take in the assets transferred?
b. What gain or loss do Bill and Bob recognize when they exchange their Jean stock for the Cookware and Home Appliance stock? What basis does each shareholder take in his or her new stock?

Required
Explain the likely circumstance behind each of the entries.

Purchasing
A purchase requisition form is prepared and sent to the purchasing department. Upon receiving a purchase requisition, one of the five purchasing agents (buyers) verifies that the requester is indeed a department head. The buyer next selects the appropriate supplier by searching the various catalogs on file. The buyer then phones the supplier, requests a price quote, and places a verbal order. A pre-numbered purchase order is processed, with the original sent to the supplier and copies to the department head, receiving, and accounts payable. One copy is also filed in the open-requisition file. When the receiving department verbally informs the buyer that the item has been received, the purchase order is transferred from the open to the filled file. Once a month, the buyer reviews the unfilled file to follow up on open orders.

Additional Information
P Company purchased its 90% interest in S Company in Year 1, on the date that S Company was incorporated, and has followed the equity method to account for its investment since that date.
On April 1, Year 5, land that had originally cost $15,000 was sold by S Company to P Company for $21,000. P purchased the land with the intention of developing it, but in Year 9 it decided that the location was not suitable and the land was sold to a chain of drug stores.
On January 1, Year 2, P Company issued $200,000 face value bonds due in 10Â years. The proceeds from the bond issue amounted to $190,000.
On July 1, Year 9, S Company purchased $40,000 of these bonds on the open market at a cost of $38,750. Intercompany bond holding gains (losses) are allocated between the two affiliates.
S Company had $75,000 in sales to P Company during Year 9.
Use income tax allocation at a 40% tax rate.
Required:
(a) Prepare a consolidated income statement for Year 9.
(b) Prepare a consolidated statement of retained earnings for Year 9.