Problem $6-4$

LO$2$

On January $1,$ Year $2,$ PAT Ltd$.$ acquired $90\%$ of SAT Inc. when SAT's retained earnings were $$1,000,000.$ There was no acquisition differential. PAT accounts for its investment under the cost method. SAT sells inventory to PAT on a regular basis at a markup of $30\%$ of selling price. The intercompany sales were $$160,000$ in Year $2$ and $$190,000$ in Year $3.$ The total amount owing by PAT related to these intercompany sales was $$60,000$ at the end of Year $2$ and $$50,000$ at the end of Year $3.$ On January $1,$ Year $3,$ the inventory of PAT contained goods purchased from SAT amounting to $$70,000,$ while the December $31,$ Year $3,$ inventory contained goods purchased from SAT amounting to $$80,000.$ Both companies pay income tax at the rate of $40\%.$

Selected account balances from the records of PAT and SAT for the year ended December $31,$ Year $3,$ were as follows:

$\backslash$table$[[$PAT$,$SAT