(Intercompany transactions, LO 1) Guilds Inc. (Guilds) is a 100%-owned subsidiary of Nutak Ltd. (Nutak). During the year ended August 31, 2006, Guilds sold merchandise costing $200,000 to Nutak for $500,000. These were the only transactions that Nutak and Guilds entered into during 2005 (with each other or with third parties) and there were no other costs incurred. The sale was on credit.

Required:

a. Prepare an income statement for Guilds for the year ended August 31, 2006.

b. What amount of accounts receivable would Guilds report on its August 31, 2006 balance sheet?

c. What amount of inventory and accounts payable would Nutak report on its August 31, 2006 balance sheet?

d. Prepare Nutak’s August 31, 2006 consolidated income statement assuming that intercompany transactions are not eliminated. How much would be reported for accounts receivable, inventory, and accounts.payable on the August 31, 2006 consolidated balance sheet?

e. Prepare Nutak’s August 31, 2006 consolidated income statement assuming that intercompany transactions are eliminated. How much would be reported for accounts receivable, inventory, and accounts payable on the August 31, 2006 consolidated balance sheet?

f. Discuss the differences in the information you prepared in parts

(d) and (e). Which information is more useful to stakeholders? Explain.