EXERCISE 64ControllingInterest,DownstreamSales

OnJanuary1, 2019, Pearce Companypurchasedan80%interestinthecapital stockofSearlCompanyfor$2,460,000. Atthattime,SearlCompanyhadcapital stockof$1,500,000 andretainedearningsof$300,000.ThedifferencebetweenbookofvalueSearlequityandthevalueimpliedbythepurchasepricewasattributedtospecificassetsofSearlCompany asfollows:

375,000

toequipmentofSearlCompanywithafiveyearremaininglife.

187,500

tolandheldbySearlCompany.

112,500

toinventoryofSearlCompany.SearlusestheFIFOassumptioninpricingitsinventory, and

600,000

thatcouldnotbeassignedtospecificassetsorliabilitiesofSearlCompany.

$1,275,000

Total

Atyearend2019 and 2020,SearlhadinitsinventorymerchandisethatithadpurchasedfromPearce at a 25%markuponcostduringeachyearinthefollowingamounts:

2019

$ 90,000

2020

$105,000

During2019, Pearcereportednetincomefromindependentoperations(includingsalestoaffiliates)of$1,500,000,whileSearlereportednetincomeof$600,000. In 2020,Pearce'snetincomefromindependentoperations(includingsalestoaffiliates)was$1,800,000 andSearl'swas$750,000.

Required:

Calculatethecontrollinginterestinconsolidatednetincomefor2019 and 2020.