(Prepare consolidated income statement with a wholly owned subsidiary, includes transfers)
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 2011, the companies had the following account balances:
| Akron | Toledo | |
| Sales | 1,100,000 | 600,000 |
| Cost of goods | 500,000 | 400,000 |
| Operating expenses | 400,000 | 220,000 |
| Investment income | not given | – |
| Dividends paid | 80,000 | 30,000 |
Intra-entity sales of $320,000 occurred during 2010 and again in 2011. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2010, with $50,000 unsold on December 31, 2011.
a. In this business combination, the direction of the intercompany transfers (either upstream or downstream) is not important to the consolidated totals. Because Akron controls all of Toledo’s outstanding stock, no non controlling interest figures are computed.
If present, non-controlling interest balances are affected by upstream sales but not by downstream.
b. By including the impact of each of these four consolidation entries, the following income statement can be created from the individual account balances:
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