Reference no: EM132498188

Question - Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $414,000 in cash. The subsidiary's stockholders' equity accounts totaled $398,000 and the noncontrolling interest had a fair value of $46,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $29,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life).

Brey reported net income from its own operations of $72,000 in 2016 and $88,000 in 2017. Brey declared dividends of $23,000 in 2016 and $27,000 in 2017.

Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price)

2016 $77,000 $155,000 $33,000

2017 96,250 175,000 45,000

2018 140,000 200,000 75,000

At December 31, 2018, Pitino owes Brey $24,000 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 $(878,000) $(406,000) Cost of goods sold 523,000 217,000 Expenses 186,200 74,000 Equity in earnings of Brey (91,440) 0 Net income $(260,240) $(115,000)Retained earnings, 1/1/18 $(504,000) $(294,000) Net income (above) (260,240) (115,000) Dividends declared 137,000 27,000 Retained earnings, 12/31/18 $(627,240) $(382,000) Cash and receivables $154,000 $106,000 Inventory 295,000 176,000 Investment in Brey 541,845 0 Land, buildings, and equipment (net) 972,000 336,000 Total assets $1,962,845 $618,000 Liabilities $(780,605) $(22,000) Common stock (555,000) (214,000) Retained earnings, 12/31/18 (627,240) (382,000) Total liabilities and equity $(1,962,845) $(618,000)

1. What was the annual amortization resulting from the acquisition-date fair-value allocations?

2. Were the intra-entity transfers upstream or downstream?

3. What intra-entity gross profit in inventory existed as of January 1, 2018?

4. What intra-entity gross profit in inventory existed as of December 31, 2018?

5. What amounts make up the $91,440 Equity Earnings of Brey account balance for 2018?

6. What is the net income attributable to the noncontrolling interest for 2018?

7. What amounts make up the $541,845 Investment in Brey account balance as of December 31, 2018?

8. Prepare the 2018 worksheet entry to eliminate the subsidiary's beginning owners' equity balances.

9. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.