Pearson Company owns 80% of the common stock of Sedbrook Company. Pearson Company sells merchandise to Sedbrook Company at 25% above its cost. During 2011 and 2012, such sales amounted to $265,000 and $475,000, respectively. The 2011 and 2012 ending inventories of Sedbrook Company included goods purchased from Pearson Company for $150,000 and $195,000, respectively. Pearson Company reported net income from its independent operations (including sales to affiliates) of $450,000 in 2011 and $480,000 in 2012. Sedbrook reported net income of $225,000 in 2011 and $275,000 in 2012 and did not declare dividends in either year. There were no intercompany sales prior to 2011. The affiliated companies file separate income tax returns and have marginal income tax rates of 30%. Ignore the income tax consequences of undistributed subsidiary income.

Required:

A. Prepare in general journal form all entries necessary in the consolidated financial statements workpapers to eliminate the effects of the intercompany sales for each of the years 2011 and 2012.

B. Calculate the amount of noncontrolling interest to be reported in the consolidated in-come statements for 2011 and 2012.

C. Calculate the controlling interest in consolidated net income for 2012.