On January 1, Year 2, PAT Ltd. acquired 90% of SAT Inc. whenSAT’s retained earnings were $1,000,000. There was no acquisitiondifferential. PAT accounts for its investment under the costmethod. SAT sells inventory to PAT on a regular basis at a markupof 30% of selling price. The intercompany sales were $160,000 inYear 2 and $190,000 in Year 3. The total amount owing by PATrelated to these intercompany sales was $60,000 at the end of Year2 and $50,000 at the end of Year 3. On January 1, Year 3, theinventory of PAT contained goods purchased from SAT amounting to$70,000, while the December 31, Year 3, inventory contained goodspurchased from SAT amounting to $80,000. Both companies pay incometax at the rate of 40%.
Selected account balances from the records of PAT and SAT forthe year ended December 31, Year 3, were as follows:
| PAT | SAT |
| Inventory | $510,000 | $400,000 |
| Accounts Payable | 700,000 | 420,000 |
| Retained Earnings, Beg. of Year | 2,500,000 | 1,200,000 |
| Sales | 4,100,000 | 2,600,000 |
| Cost of Sales | 3,200,000 | 1,800,000 |
| Income Tax Expense | 180,000 | 150,000 |
Determine the amount to report on the Year 3 consolidatedfinancial statements for the selected accounts noted above.
