Patriot Corporation owns 100% of Simon Company's common stock. On January 1, 2017, Patriot sold equipment with a book value of $350,000 to Simon for $500,000. Simon is depreciating the equipment over a ten-year life by the straight-line method. The net adjustments to compute 2017 and 2018 consolidated income would be an increase (decrease) of:

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The initial sale from Patriot to Simon resulted in a $150,000 profit ($500,000 sale price - $350,000 book value). For consolidation purposes, this intra-group profit must be eliminated in the year of sale (2017). Additionally, since Simon is depreciating the equipment over ten years, the excess profit of $150,000 would be amortized at $15,000 per year ($150,000 / 10 years). Thus, for 2017, the net adjustment is a decrease of $135,000 ($150,000 profit - $15,000 depreciation) and for 2018, an increase of $15,000 to reverse the excess depreciation charged against consolidated income.

Patriot Corporation Owns 100% of Simon Company's Common Stock