On December 20, 20X2, Evert Corporation paid Frankle Company $180,000 for inventory that Frankle had purchased for $240,000. Frankle had not previously recognized a loss and reduced the inventory's carrying value because the drop in prices was considered temporary. A resurgence in demand for the product occurred in early 20X3, and Evert sold the entire inventory for $310,000.

Evert owns 90 percent of Frankle's stock. Evert prepared consolidated financial statements at December 31, 20X2 and 20X3, but failed to make adjustments to the reported data provided by Evert and Frankle for the intercorporate sale. 

Required 

Prepare a memo to Evert's treasurer describing the required treatment of intercorporate sales of inventory. Include citations to or quotations from the authoritative accounting literature to support your position. You should include in your memo an analysis of the effects that eliminating the intercompany transfer would have had on Evert's reported revenues and expenses for 20X2 and 20X3 and on its balance sheet accounts at December 31, 20X2 and 20X3.