Akron, Inc., owns all outstanding stock of Toledo Corporation. Amortization expense of $15,000 per year for patented technology resulted from the original acquisition. For 2011, the companies had the following account balances:
| Akron | Toledo |
Sales | $1,100,000 | $600,000 |
Cost of goods sold | 500,000 | 400,000 |
Operating expenses | 400,000 | 220,000 |
Investment income | Not given | -0- |
Dividends paid | 80,000 | 30,000 |
Intra-entity sales of $320,000 occurred during 2010 and again in 2011. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2010, with $50,000 unsold on December 31, 2011.
a. For consolidation purposes, does the direction of the transfers (upstream or downstream) affect the balances to be reported here?
b. Prepare a consolidated income statement for the year ending December 31, 2011.
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