Downstream Sales Peer Company owns 80% of the common stock of Seacrest Company. Peer Company sells merchandise to Seacrest Company at 25% above its cost. During 2004 and 2005 such sales amounted to $265,000 and $475,000, respectively. The 2004 and 2005 ending inventories of Seacrest Company included goods purchased from Peer Company for $125,000 and $170,000, respectively.
Peer Company reported net income from its independent operations (including sales to affiliates) of $450,000 in 2004 and $480,000 in 2005. Seacrest reported net income of $995,000 in 2004 and $275,000 in 2005 and did not declare dividends in either year. There were no intercompany sales prior to 2004. LO5 Required:
A. Prepare in general journal form all entries necessary in the consolidated financial statements workpapers to eliminate the effects of the intercompany sales for each of the years 2004 and 2005.
B. Calculate the amount of noncontrolling interest to be deducted from combined income in the consolidated income statements for 2004 and 2005.
C. Calculate consolidated net income (controlling interest in combined income) for 2005.