PROBLEM 7-1 Workpaper Journal Entries and Income Statement Balances Powell Company owns 80% of the outstanding common stock of Sullivan Company. On June 30, 2011, Sullivan Company sold equipment to Powell Company for $500,000. The equipment cost Sullivan Company $780,000 and had accumulated depreciation of $400,000 on the date of the sale. The management of Powell Company estimated that the equipment had a remaining useful life of four years from June 30, 2011. In 2012, Powell Company reported $300,000 and Sullivan Company reported $200,000 in net income from their independent operations (including sales to affiliates but excluding dividend or equity income from subsidiary).

Required: A. Prepare in general journal form the workpaper entries necessary because of the intercompany sale of equipment in: (1) The consolidated financial statements workpaper for the year ended December 31, 2011. (2) The consolidated financial statements workpaper for the year ended December 31, 2012. B. Calculate the balances to be reported in the consolidated income statement for the year ended December 31, 2012, for the following items: (1) Consolidated income. (2) Noncontrolling interest in consolidated income. (3) Controlling interest in consolidated income.