P Inc. owns 70% of S Inc. During 2019, P Inc sold inventory to S for $20,000. Half of this inventory remained in S's warehouse at December 31, 2019 year-end. On January 1, 2019, S Inc had inventory in its warehouse which was purchased from P for $5,000. This inventory was sold to an outside party during 2019. Also during 2019, S Inc sold inventory to P Inc. for $10,000. 50% of this inventory remained in P's warehouse at year end. Both companies are subject to a tax rate of 25%. The gross profit percentage on sales is 30% for both companies. P Inc. uses the cost method to account for its Investment in S Inc. The inventories of both companies as at Dec 31, 2019 were all sold to outsiders during 2020. There were no intercompany transactions during 2020.

Required

1. Prepare a schedule showing the realized and unrealized profits resulting from downstream transactions for 2019 and 2020. Your schedule should include both pre-tax and after-tax amounts. 8 Marks
2. Prepare a schedule showing the realized and unrealized profits resulting from upstream transactions for 2019 and 2020. Your schedule should include both pre-tax and after-tax amounts. 8 Marks
3. In your own words, explain what effect (if any) these intercompany transactions would have on the non-controlling interest. Note any plagiarism will result in a zero on this part 4 Marks