In preparing the consolidation worksheet for Pencil Corporation and its 60 percent-owned subsidiary, Stylus Company, the following consolidation entries were proposed by Pencil’s bookkeeper:

Pencil’s bookkeeper recently graduated from Oddball University, and although the dollar amounts recorded are correct, he had some confusion in determining which accounts needed adjustment. All intercorporate sales in 20X5 were from Stylus to Pencil, and Stylus sells inventory at cost plus 40 percent of cost. Pencil uses the fully adjusted equity method in accounting for its ownership in Stylus.

Required

a. What percentage of the intercompany inventory transfer was resold prior to the end of 20X5?

b. Give the appropriate consolidation entries needed at December 31, 20X5, to prepare consolidated financial statements.

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Cash 80,000 Accounts Payable To eliminate the unpaid balance for intercorporate inventory sales in 20X5. Cost of Goods Sold Income from Stylus Company To eliminate unrealized inventory profits at December 31, 20X5. Income from Stylus Company Sales To eliminate intercompany sales for 20X5. 12,000 80,000 140,000 12,000 140,000