Akron, Inc., owns all outstanding stock of Toledo Corporation. Amortization expense of $15,000 per year for patented technology resulted from the original acquisition. For 2011, the companies had the following account balances:

Akron Toledo

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,100,000 $600,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 400,000

Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 220,000

Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . Not given –0–

Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 30,000

Intra-entity sales of $320,000 occurred during 2010 and again in 2011. This merchandise cost $240,000 each year. Of the total transfers, $70,000 was still held on December 31, 2010, with $50,000 unsold on December 31, 2011.

a. For consolidation purposes, does the direction of the transfers (upstream or downstream) affect the balances to be reported here?

b. Prepare a consolidated income statement for the year ending December 31, 2011.