Acc405 Fundamentals of Advanced Accounting: P5-21 Akron Inc, owns all outstanding stock of Toledo

Acc405 Fundamentals of Advanced Accounting

P5-21 (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 sold 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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