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 2018, 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 declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 . . . . . . . . . . . . . 30,000
Intra-entity sales of $320,000 occurred during 2017 and again in 2018. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2017, with
$50,000 unsold on December 31, 2018.
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, 2018?