Making Parent-Company-Only Statements Articulate During 2006, Pero Inc. recorded $10,000 of intercompany royalty income. As of 12/31/06, its 100%-owned subsidiary, Sero Inc., which treats the intercompany royalty charge as an inventoriable cost, had charged $9,000 of the royalty cost to cost of sales. The remaining $1,000 remains in inventory.

Additional Information 1. The parent created Sero on 1/1/06, making a $400,000 cash investment.

2. During 2006, Sero reported net income of $80,000 and declared (and paid) $30,000 in cash div¬ idends.

3. Pero issues both consolidated statements and parent-company-only statements.

1. If Pero uses the equity method, what adjusting entry does it record to present its parentcompany-only statements?

2. Repeat requirement 1, assuming that Pero uses the cost method.