Akron, Inc., owns all outstanding stock of Toledo Corporation. Amortization expense of $15,000 per year for patented technology resulted from the original acquisition. For 2011, the companies had the following account balances:
|
Akron |
Toledo |
|
|
Sales |
$1,100,000 |
$600,000 |
|
Cost of goods sold |
500,000 |
400,000 |
|
Operating expenses |
400,000 |
220,000 |
|
Investment income |
Not given |
–0– |
|
Dividends paid |
80,000 |
30,000 |
Intra entity sales of $320,000 occurred during 2010 and again in 2011. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2010, with $50,000 unsold on December 31, 2011.
a. For consolidation purposes, does the direction of the transfers (upstream or downstream) affect the balances to be reported here?
b. Prepare a consolidated income statement for the year ending December 31, 2011.