Psalm Enterprises Owns 90% of the Outstanding Voting Stock of Solomon

Essay

Psalm Enterprises owns 90% of the outstanding voting stock of Solomon Siding,which was purchased at a cost equal to 90% of the book value of Solomon's net assets many years ago.(At the time of purchase,the fair value and book value of Solomon's net assets were equal. )Psalm purchases merchandise from Solomon at 110% above Solomon's cost.In 2012,intercompany sales from Solomon to Psalm amounted to $362,000.Unrealized profits in Psalm's December 31,2011 inventory and December 31,2012 inventory were $82,000 and $26,000,respectively.Solomon reported net income of $980,000 for 2012.
Required:
1.Determine Psalm's income from Solomon for 2012.
2.In General Journal format,prepare consolidation working paper entries at December 31,2012 to eliminate the effects of the intercompany inventory sales assuming the perpetual inventory method is used.