Petrel Corporation acquired a 60% interest in Salt Corporation on January 1, 2005, at a cost equal to book value and fair value. Salt reports net income of $880,000 for 2005. Petrel regularly sells merchandise to Salt at 120% of Petrels cost. The intercompany sales information for 2004 is as follows:

Intercompany sales at selling price $ 672,000

Value of merchandise remaining

unsold by Salt 132,000

Required:

1

Determine the unrealized profit in Salts inventory at December 31, 2004.

2

Compute Petrels income from Salt for 2005.