On January 1, Year 2, P Ltd. acquired 90% of S Inc. when Ss retained earnings were $910,000. There was no acquisition differential. P accounts for its investment under the cost method. S sells inventory to P on a regular basis at a markup of 30% of selling price. The inter-company sales were $50,000 in Year 2 and $80,000 in Year 3. The total amount owing by P related to these inter-company sales was $10,000 at the end of Year 2 and $8,000 at the end of Year 3. On January 1, Year 3, the inventory of P contained goods purchased from S amounting to $10,000, while the December 31, Year 3, inventory contained goods purchased from S amounting to $20,000. Both companies pay income tax at the rate of 40%.

Selected account balances from the records of P and S for the year ended December 31, Year 3, were as follows:

Required:

• Prepare the inter-company profit analysis for year 3.
• Show the consolidation worksheet entries to recognize and eliminate inter-company inventory profits you identified above in part a for year 3.
• Calculate and report the amount to report on the Year 3 consolidated financial statements for the selected accounts noted above.

\begin{tabular}{lrrr} & \multicolumn{1}{c}{P} & \multicolumn{1}{c}{S} \\ Inventory & S & 10,000 & $310,000 \\ Accounts payable & 610,000 & 330,000 \\ Retained earnings, beginning of year & 2,410,000 & 1,110,000 \\ Sales & 4,010,000 & 2,510,000 \\ Cost of sales & 3,110,000 & 1,710,000 \\ Income tax expense & 90,000 & 60,000 \end{tabular}