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 2013, 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 2012 and again in 2013. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2012, with $50,000 unsold on December 31, 2013.
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, 2013.