Reference no: EM132623688

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:

Problem a. Calculate Prelude Company's equity in net income for 2017.

Problem b. Prepare the working paper eliminations made in consolidation at December 31, 2017, related to the intercompany ("I") transactions ONLY.