Prelude Company owns 100% of Safe Inc. The excess of acquisition cost over book value

was attributed entirely to previously unrecorded identifiable intangibles. For 2017, Safe

reported net income of $6,000,000 and declared and paid dividends of $1,500,000. Amortization

of the previously unrecorded identifiable intangibles for 2017 is $1,200,000. The following

information is available regarding intercompany transactions:

1. During 2017, Safe sold services to Prelude for $1,000,000. Prelude still owes Safe

$100,000 for those services at year-end.

2. Prelude's ending inventory at December 31, 2017, included merchandise acquired from Safe;

the unconfirmed profit on this inventory was $300,000.

3. Prelude's ending inventory at December 31, 2016, included merchandise acquired from Safe;

the unconfirmed profit on this inventory was $400,000.

4. Safe's ending inventory at December 31, 2017, included merchandise acquired from Prelude;

the unconfirmed profit on this inventory was $150,000.

5. Safe's ending inventory at December 31, 2016, included merchandise acquired from Prelude;

the unconfirmed profit on this inventory was $225,000.

Required:

a. Calculate Prelude Company's equity in net income for 2017.

b. Prepare the working paper eliminations made in consolidation at December 31, 2017, related to the

intercompany ("I") transactions ONLY.

Excel sheet picture is provided for better and easy calculation, solve it with this.

Part a: Total Safe reported net income Amortization of identifiable intangibles Unconfirmed profit in ending inventory - upstream Unconfirmed profit in beginning inventory - upstream Unconfirmed profit in ending inventory - downstream Unconfirmed profit in beginning inventory - downstream Equity in net income S Part b: DR CR I-1: Sales Services Expense To eliminate intercompany sale of services1-2: Accounts payable Accounts receivable To eliminate intercompany receivables/payables related to sale of services 1-3: COGS Inventory To eliminate unconfirmed profit in ending inventory due to upstream sales 1-4: Retained earnings - Safe COGS To eliminate unconfirmed profit in beginning inventory due to upstream sales1-5: COGS Inventory To eliminate unconfirmed profit in ending inventory due to downstream sales 1-6: Investment in Safe COGS To eliminate unconfirmed profit in beginning inventory due to downstream sales