Knight Corporation owns 100 percent of the voting shares of Spahn Company. During 20X6, Spahn Company purchased inventory items for \(\$ 20,000\) and sold them to Knight Corporation for \(\$ 50,000\). Knight Corporation continues to hold the items in inventory on December 31, 20X6. Sales for the two companies during 20X6 totaled \(\$ 300.000\), and total cost of goods sold was \(\$ 200,000\).

\section*{Required}

a. If no adjustment is made to eliminate the intercorporate sale when a consolidated income statement is prepared for 20X6. by what amount will consolidated net income be overstated or understated?

b. Prepare a consolidated income statement for \(20 \mathrm{X} 6\) without any adjustment for the intercorporate sale.

c. Prepare a consolidated income statement for 20X6 adjusted for the intercorporate sale.

d. What items in the consolidated income statements are different in parts \(b\) and \(c\) ?