Sales Between Related Entities McGregor Company holds 100 percent ownership of Lansing Company and Dubuque Company. During 2001, McGregor Company reported sales of $500,000, Lansing reported sales of $400,000, and Dubuque reported sales of $300,000. The operations of the three companies are highly integrated. One hundred percent of Dubuque’s sales are to McGregor Company and 60 percent of Lansing’s sales are to McGregor Company.

a. Why is it appropriate for McGregor to include the operations of Lansing Company and Dubuque Company when it prepares an income statement?

b. What amount of sales should it report in its 2001 consolidated income statement?

c. Why must the sales between McGregor Company and its subsidiaries be excluded from consolidated revenues?