January 2, 2011, Pohang Company acquired 80 percent of Suro Corporation's voting common stock for 4, 5, © $1.25 billion. The fair value of the noncontrolling interest at the date of acquisition was $300 million. The $50 million excess of acquisition cost and noncontrolling interest over the book value of Suro was attributed entirely to goodwill. Suro reported net income of $150 million and $200 million in 2011 and 2012, respectively, paying out 40 percent of each period's earnings in dividends. Pohang reports its investment in Suro at equity. There is no goodwill impairment in 2011 or 2012. Information on intercompany transactions follows:
1. On March 5, 2011, Suro sold a parcel of land to Pohang for $60 million; the land originally cost $45 million. Pohang continues to hold the land.
2. During 2012, Pohang and Suro recorded intercompany merchandise sales of $350 million, an amount equal to cost plus 25 percent. Suro's beginning inventory included $50 million of merchandise purchased from Pohang in prior years, while Pohang's ending inventory included $80 million of merchandise purchased from Suro.
3. On January 2,2012, Suro sold a piece of machinery to Pohang for $60 million and recorded a gain of $25 million. Accumulated depreciation on the machinery amounted to $40 million at January 2. The machinery is being depreciated by the straight-line method over its remaining life of five years.
4. Pohang billed Suro $20 million for computer services during the year. The costs incurred by Pohang in supplying these services amounted to $15 million. On December 31, 2012, the unpaid portion of these intercompany services amounted to $3 million.
Required
a. Prepare a schedule to compute Pohang's equity method income accrual and the noncontrolling interest in consolidated net income for 2012.
b. Prepare the working paper eliminations to consolidate the accounts of Pohang and Suro at December 31, 2012