Question - Puma Company owns 80% of the common stock of Smarte Company. Puma sells merchandise to Smarte at 20% above cost. During 2017 and 2018, intercompany sales amounted to $1,080,000and $1,200,000 respectively. At the end of 2017, Smarte had one-fifth of the goods purchased that year from Puma in its ending inventory. Smarte's 2018 ending inventory contained one fourth of that year's purchases from Puma. There were no intercompany sales prior to 2017.Puma reported net income from its own operations of $720,000 in 2017 and $760,000 in 2018.Smarte reported net income of $400,000 in 2017 and $460,000 in 2018. Neither company declared dividends in either year.
Required:
a) Prepare in general journal form all entries necessary on the consolidated statements work papers to eliminate the effects of the intercompany sales for both 2017 and 2018.
b) Calculate controlling interest in consolidated net income for 2018.