Reference no: EM132628071
Question - 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.
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