The individual financial statements for these two companies as of December 31, 2010, and the year then ended follow: LO8 Woods, Inc.

Scott, Inc.

Sales.

. $ (700,000)

$(335,000)

Cost of goodssold.

. 460,000 205,000 Operating expenses.

. 188,000 70,000 Equity earnings in Scott.

. (28,000)

-0-

Netincome.

. $ (80,000)

$ (60,000)

Retained earnings, 1/1/10.

. $ (695,000)

$(280,000)

Net income (above).

. (80,000)

(60,000)

Dividends paid.

. 45,000 15,000 Retained earnings, 12/31/10.

. $ (730,000)

$(325,000)

Cash and receivables.

. $ 248,000

$ 148,000 Inventory.

. 233,000 129,000 Investment inScott.

. 411,000

-0-

Buildings (net).

. 308,000 202,000 Equipment(net).

. 220,000 86,000 Patents(net).

. -0-

20,000 Totalassets.

. $ 1,420,000

$ 585,000 Liabilities.

. $ (390,000)

$(160,000)

Commonstock.

. (300,000)

(100,000)

Retained earnings, 12/31/10.

. (730,000)

(325,000)

Total liabilities and equities.

. $(1,420,000)

$(585,000)

a. Show how Woods determined the $411,000 Investment in Scott account balance. Assume that Woods defers 100 percent of downstream intercompany profits against its share of Scott’s income.

b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31,2010.