Problem: Allen, Inc., owns all of the outstanding stock of Bowen Corporation. Amortization expense of $9,000 per year resulted from the original purchase. For 2004, the companies had the following account balances:
Allen Bowen
Sales 900,000 500,000
Cost of Goods Sold 400,000 300,000
Operations Expense 300,000 120,000
Investment Income not given 0
Dividends Paid 60,000 40,000
Intercompany sales of $200,000 occurred during 2003 and again in 2004. This merchandise cost $140,000 each year. Of the total transfers, $60,000 was still held on December 31, 2003, with $45,000 unsold on December 31, 2004.
Q1. For consolidation purposes, does the direction of the transfers (upstream or downstream) affect the balances to be reported here?
Q2. Prepare a consolidated income statement for the year ending December 31, 2004.