P Company owns 80% of the outstanding stock of S Company. During 2011, S Company reported net income of $525,000 and declared no dividends. At the end of the year, S Company’s inventory included $487,500 in unrealized profit on purchases from P Company. Intercompany sales for 2011 totaled $2,700,000.

Required:

Prepare in general journal form all consolidated financial statement workpaper entries necessary at the end of the year to eliminate the effects of the 2011 intercompany sales.