Percy Company owns 80% of the common stock of Smyth Company. Percy sells merchandise to Smyth at 20% above cost. During 2011 and 2012, intercompany sales amounted to $1,080,000 and $1,200,000 respectively. At the end of 2011, Smyth had one-fifth of the goods purchased that year from Percy in its ending inventory. Smyth's 2012 ending inventory contained one-fourth of that year's purchases from Percy. There were no intercompany sales prior to 2011.
Percy reported net income from its own operations of $720,000 in 2011 and $760,000 in 2012. Smyth reported net income of $400,000 in 2011 and $460,000 in 2012. Neither company declared dividends in either year.
Required:
A. Prepare in general journal form all entries necessary on the consolidated statements workpapers to eliminate the effects of the intercompany sales for both 2011 and 2012.
B. Calculate controlling interest in consolidated net income for 2012