Corporation is a wholly owned subsidiary of Seek Company. During 2011, Hide sold all of its production to Seek Company for $400,000, a price that includes a 25% gross profit. 2011 was the first year that such intercompany sales were made. By year-end, Seek sold, for $416,000, 80% of the goods it had purchased. The balance of the intercompany goods, $80,000, remained in the ending inventory and was adjusted to a lower fair value of $70,000. The adjustment was a charge to the cost of goods sold.
1. Determine the gross profit on sales recorded by both companies.
2. Determine the gross profit to be shown on the consolidated income statement.