Reference no: EM132217861
Problem - Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $513,000 in cash. The subsidiary's stockholders' equity accounts totaled $497,000 and the noncontrolling interest had a fair value of $57,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $51,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).
Brey reported net income from its own operations of $83,000 in 2016 and $99,000 in 2017. Brey declared dividends of $28,500 in 2016 and $32,500 in 2017.
Year
|
Cost to Brey
|
Transfer Price to Pitino
|
Inventory Remaining at Year-End (at transfer price)
|
2016
|
$88,000
|
$210,000
|
$44,000
|
2017
|
161,000
|
230,000
|
56,500
|
2018
|
127,500
|
255,000
|
55,000
|
At December 31, 2018, Pitino owes Brey $35,000 for inventory acquired during the period.
The following separate account balances are for these two companies for December 31, 2018, and the year then ended.
Note: Parentheses indicate a credit balance.
|
Pitino
|
Brey
|
Sales revenues
|
$(900,000)
|
$(461,000)
|
Cost of goods sold
|
534,000
|
228,000
|
Expenses
|
187,300
|
96,000
|
Equity in earnings of Brey
|
(105,255)
|
0
|
Net income
|
$(283,955)
|
$(137,000)
|
Retained earnings, 1/1/18
|
$(526,000)
|
$(316,000)
|
Net income (above)
|
(283,955)
|
(137,000)
|
Dividends declared
|
148,000
|
55,000
|
Retained earnings, 12/31/18
|
4(661,955)
|
$(398,000)
|
Cash and receivables
|
$165,000
|
117,000
|
Inventory
|
350,000
|
255,000
|
Investment in Brey
|
645,300
|
0
|
Land, buildings, and equipment (net)
|
983,000
|
347,000
|
Total assets
|
$2,143,300
|
$719,000
|
Liabilities
|
$(871,345)
|
$(19,000)
|
Common stock
|
(610,000)
|
(302,000)
|
Retained earnings, 12/31/18
|
(661,955)
|
(398,000)
|
Total liabilities and equity
|
$(2,143,300)
|
(719,000)
|
What was the annual amortization resulting from the acquisition-date fair-value allocations?
Were the intra-entity transfers upstream or downstream?
What intra-entity gross profit in inventory existed as of January 1, 2018?
What intra-entity gross profit in inventory existed as of December 31, 2018?
What amounts make up the $105,255 Equity Earnings of Brey account balance for 2018?
What is the net income attributable to the noncontrolling interest for 2018?
What amounts make up the $645,300 Investment in Brey account balance as of December 31, 2018?
Prepare the 2018 worksheet entry to eliminate the subsidiaryâ€TMs beginning ownersâ€TM equity balances.
Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.