(Estimated Time: 45 to 65 Minutes) On January 1, 2016, Daisy Company acquired 80 percent of Rose Company for $594,000 in cash, Rose's total book value on that date was $610,000 and the fair value of the noncontrolling interest was $148,500. The newly acquired subsidiary possessed a trademark (10-year remaining life) that, although unrecorded on Rose's accounting records, had a fair value of $75,000. Any remaining excess acquisition-date fair value was attributed to goodwill. Daisy decided to acquire Rose so that the subsidiary could furnish component parts for the parent's production process. During the ensuing years, Rose sold inventory to Daisy as follows: Cost to Rose Year Company 2016 $100,000 2017 100,000 2018 120,000 Gross Transfer Profit Price Rate $140,000 28.6% 150,000 33.3 160,000 25.0 Transferred Inventory Still Held at End of Year (at transfer price) $20,000 30,000 68,000 Any transferred merchandise that Daisy retained at year-end was always put into production during the following period. On January 1, 2017. Daisy sold Rose several pieces of equipment that had a 10-year remaining life and were being depreciated on the straight-line method with no salvage value. This coni On January 1, 2018, Daisy sold land to Rose for $50,000, its fair value at that date. The original cost had been only $22,000. By the end of 2018, Rose had made no payment for the land. The following separate financial statements are for Daisy and Rose as of December 31, 2018. Daisy has applied the equity method to account for this investment. Page 241 Sales Rose Company $ (500,000) 300,000 80,000 0 Cost of goods sold Operating expenses Gain on sale of land Equity in earnings of Rose Company Net income Retained earnings. 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and accounts receivable Inventory Investment in Rose Company Daisy Company $ (900,000) 598,000 210,000 (28,000) (60,000) $ (180,000) $ (620,000) (180,000) 55.000 S (745.000) 348,000 430,400 737.600 S $ (120,000) (430,000 (120,000) 50.000 (500.000) 410,000 190.000 $ -0- (60,000) $ (180.000) $ (620.000) (180,000) 55.000 Equity in earnings of Rose Company Net income Retained earnings. 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and accounts receivable Inventory Investment in Rose Company Land Equipment Accumulated depreciation Total assets Liabilities Common stock Retained earnings. 12/31/18 Total liabilities and equities $ (745,000) 348,000 430,400 737,600 454.000 270.000 (180,000) $ 2,060,000 (715,000) (600.000) (745,000) $(2.060,000) $ (120,000) $ (430,000) (120,000) 50.000 $ (500,000) $ 410,000 190.000 -0- 280,000 190.000 (50,000) $ 1.020,000 (120,000) (400,00) (500,000 S(1.020,000) Required Answer the following questions: Required Answer the following questions: a. By how much did Rose's book value increase during the period from January 1, 2016, through December 31, 2017? b. During the initial years after the takeover, what annual amortization expense was recognized in connection with the acquisition date excess of fair value over book value? c. What amount of intra-entity gross profit exists within the parent's inventory figures at the beginning and at the end of 2018? d. Equipment has been transferred between the companies. What amount of additional depreciation is recognized in 2018 because of this transfer? e. The parent reports Income of Rose Company of $60,000 for 2018. How was this figure calculated? f. Without using a worksheet, determine consolidated totals. 8. Prepare the December 31, 2018, worksheet entries required by the transfers of inventory, land, and equipment. Daisy Company & Subsidiary Consolidating Worksheet For the Year Ended December 31, 2018 Daisy Rose Eliminations Increase Decrease Consolidated (900,000 $ 598,000 (500,000) 300,000 Sales Cost of goods sold Operating expenses Gain on sale of land 80,000 210,000 (28,000) (60,000) Equity in earnings of Rose Consolidated net income $ (180,000) S (120,000) Net Income attributable to noncontrolling Net Income attributable to Daisy $ (180,000) $ (120.000) Retained earnings, 1/1/2018 $ Net Income (620,000 S (180,000) (430,000) (120,000) 50,000 (500,000) Dividends declared Retained earnings, 12/31/2018 55.000 S (745,000) $ Cash and accounts receivable 348,000 $ 410,000 190,000 Inventory Investment in Rose 430,400 737,600 454,000 270,000 Land 280,000 Equipment 190,000 Trademark Goodwill Accumulated depreciation (180,000) 2,060,000 $ (50,000) 1,020,000 Total assets $ Liabilities $ (715,000) $ (600,000) (120,000) (400,000) Common stock Noncontrolling interests in Rose Retained earnings, 12/31/2018 1745,000) (2,060,000) $ (500,000) (1,020,000) $ Total liabilities and equities (Estimated Time: 45 to 65 Minutes) On January 1, 2016, Daisy Company acquired 80 percent of Rose Company for $594,000 in cash, Rose's total book value on that date was $610,000 and the fair value of the noncontrolling interest was $148,500. The newly acquired subsidiary possessed a trademark (10-year remaining life) that, although unrecorded on Rose's accounting records, had a fair value of $75,000. Any remaining excess acquisition-date fair value was attributed to goodwill. Daisy decided to acquire Rose so that the subsidiary could furnish component parts for the parent's production process. During the ensuing years, Rose sold inventory to Daisy as follows: Cost to Rose Year Company 2016 $100,000 2017 100,000 2018 120,000 Gross Transfer Profit Price Rate $140,000 28.6% 150,000 33.3 160,000 25.0 Transferred Inventory Still Held at End of Year (at transfer price) $20,000 30,000 68,000 Any transferred merchandise that Daisy retained at year-end was always put into production during the following period. On January 1, 2017. Daisy sold Rose several pieces of equipment that had a 10-year remaining life and were being depreciated on the straight-line method with no salvage value. This coni On January 1, 2018, Daisy sold land to Rose for $50,000, its fair value at that date. The original cost had been only $22,000. By the end of 2018, Rose had made no payment for the land. The following separate financial statements are for Daisy and Rose as of December 31, 2018. Daisy has applied the equity method to account for this investment. Page 241 Sales Rose Company $ (500,000) 300,000 80,000 0 Cost of goods sold Operating expenses Gain on sale of land Equity in earnings of Rose Company Net income Retained earnings. 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and accounts receivable Inventory Investment in Rose Company Daisy Company $ (900,000) 598,000 210,000 (28,000) (60,000) $ (180,000) $ (620,000) (180,000) 55.000 S (745.000) 348,000 430,400 737.600 S $ (120,000) (430,000 (120,000) 50.000 (500.000) 410,000 190.000 $ -0- (60,000) $ (180.000) $ (620.000) (180,000) 55.000 Equity in earnings of Rose Company Net income Retained earnings. 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and accounts receivable Inventory Investment in Rose Company Land Equipment Accumulated depreciation Total assets Liabilities Common stock Retained earnings. 12/31/18 Total liabilities and equities $ (745,000) 348,000 430,400 737,600 454.000 270.000 (180,000) $ 2,060,000 (715,000) (600.000) (745,000) $(2.060,000) $ (120,000) $ (430,000) (120,000) 50.000 $ (500,000) $ 410,000 190.000 -0- 280,000 190.000 (50,000) $ 1.020,000 (120,000) (400,00) (500,000 S(1.020,000) Required Answer the following questions: Required Answer the following questions: a. By how much did Rose's book value increase during the period from January 1, 2016, through December 31, 2017? b. During the initial years after the takeover, what annual amortization expense was recognized in connection with the acquisition date excess of fair value over book value? c. What amount of intra-entity gross profit exists within the parent's inventory figures at the beginning and at the end of 2018? d. Equipment has been transferred between the companies. What amount of additional depreciation is recognized in 2018 because of this transfer? e. The parent reports Income of Rose Company of $60,000 for 2018. How was this figure calculated? f. Without using a worksheet, determine consolidated totals. 8. Prepare the December 31, 2018, worksheet entries required by the transfers of inventory, land, and equipment. Daisy Company & Subsidiary Consolidating Worksheet For the Year Ended December 31, 2018 Daisy Rose Eliminations Increase Decrease Consolidated (900,000 $ 598,000 (500,000) 300,000 Sales Cost of goods sold Operating expenses Gain on sale of land 80,000 210,000 (28,000) (60,000) Equity in earnings of Rose Consolidated net income $ (180,000) S (120,000) Net Income attributable to noncontrolling Net Income attributable to Daisy $ (180,000) $ (120.000) Retained earnings, 1/1/2018 $ Net Income (620,000 S (180,000) (430,000) (120,000) 50,000 (500,000) Dividends declared Retained earnings, 12/31/2018 55.000 S (745,000) $ Cash and accounts receivable 348,000 $ 410,000 190,000 Inventory Investment in Rose 430,400 737,600 454,000 270,000 Land 280,000 Equipment 190,000 Trademark Goodwill Accumulated depreciation (180,000) 2,060,000 $ (50,000) 1,020,000 Total assets $ Liabilities $ (715,000) $ (600,000) (120,000) (400,000) Common stock Noncontrolling interests in Rose Retained earnings, 12/31/2018 1745,000) (2,060,000) $ (500,000) (1,020,000) $ Total liabilities and equities