On January 1, 2011, Sledge had common stock of $120,000 and retained earnings of $260,000. During that year, Sledge reported sales of $130,000, cost of goods sold of $70,000, and operating expenses of $40,000.

On January 1, 2009, Percy, Inc., acquired 80 percent of Sledge’s outstanding voting stock. At that date, $60,000 of the acquisition-date fair value was assigned to unrecorded contracts (with a 20-year life) and $20,000 to an undervalued building (with a 10-year life). LO8 In 2010, Sledge sold inventory costing $9,000 to Percy for $15,000. Ofthis merchandise, Percy continued to hold $5,000 at year-end. During 2011, Sledge transferred inventory costing $11,000 to Percy for $20,000. Percy still held half of these items at year-end.

On January 1, 2010, Percy sold equipment to Sledge for $12,000. This asset originally cost $16,000 but had a January 1,2010, book value of $9,000. At the time of transfer, the equipment’s remaining life was estimated to be five years.

Percy has properly applied the equity method to the investment in Sledge.

a. Prepare worksheet entries to consolidate these two companies as of December 31,2011.

b. Compute the noncontrolling interest in the subsidiary’s income for 2011.