Intercompany inventory transactions

Assume a parent company acquired 80% of the outstanding voting common stock of a subsidiary on January 1, 2021. On the acquisition date, the identifiable net assets of the subsidiary had fair values that approximated their recorded book values except for a patent, which had a fair value of $130,000 and no recorded book value. On the date of acquisition, the patent had five years of remaining useful life and the parent company amortizes its intangible assets using straight line amortization. During the year ended December 31, 2022, the subsidiary recorded sales to the parent in the amount of $156,000 On these sales, the subsidiary recorded pre-consolidation gross profits equal to 25%. Approximately 30% of this merchandise remains in the parents inventory at December 31, 2022. The following summarized pre-consolidation financial statements are for the parent and the subsidiary for the year ended December 31, 2022:

Based on this information, determine the balance for Consolidated Revenues:

a. $3,640,000

b. $3,796,000

c. $3,120,000

d. $3,484,000

\begin{tabular}{l|r|r|} \hline & Investor & Investee \\ \hline Income statement: & & \\ \hline Revenues & $3,120,000 & $520,000 \\ \hline Income from Investee & 136,240 & \\ \hline Expenses & (2,600,000) & (312,000) \\ \hline Net income & $656,240 & $208,000 \\ \hline Statement of retained earnings: & & \\ \hline Beginning retained earnings & $967,200 & $52,000 \\ \hline Net income & 656,240 & 208,000 \\ \hline Dividends declared & (83,200) & (52,000) \\ \hline Ending retained earnings & $1,540,240 & $208,000 \\ \hline Balance sheet: & & \\ \hline Current assets & $1,040,000 & $130,000 \\ \hline Equity investment & 302,640 & \\ \hline Noncurrent assets & 5,200,000 & 390,000 \\ \hline Total assets & $6,542,640 & $520,000 \\ \hline Liabilities & $3,962,400 & $208,000 \\ \hline Common stock \& APIC & 1,040,000 & 104,000 \\ \hline Retained earnings & 1,540,240 & 208,000 \\ \hline Total liabilities and equity & $6,542,640 & $520,000 \\ \hline \hline \end{tabular}