Chapter 5, Problem 21P

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.