Heman Corporation common stock purchased by Fred, Inc. Cash paid for stock purchase Book value of Herman's assets and liabilities Fair value of noncontrolling interest Herman patents (12-year remaining life) were undervalued by Herman customer list acquisition-date fair value Life of customer list in years 60% $ 312,000 $ 300,000 $ 208,000 $ 90,000 $ 130,000 10 Intra entity inventory transfers: Year 2016 2017 2018 Original Cost to Herman $ 80,000 $ 100,000 90,000 Transfer Ending Price Balance at to Fred Transfer Price 100,000 $ 20,000 125,000 40,000 120,000 30.000 400 $ $ $ 2018 inventory transfers not paid for by Fred at year end Book value of land sold by Fred to Hemman Sale price of land sold by Fred to Herman Face value of Fred's bonds purchased by Herman Cash interest rate of bonds purchased by Hemman Fred's book value of bond liability at repurchase date Effective yield of bonds Herman's bond acquisition price based on effective rate of 10% Herman's reported accounts for 2018: Net income Beginning retained eamings Dividends Common stock 50% 15,000 22,000 20,000 8% 21,386 6% 18.732 $ $ $ $ $ $ 0000 | 25,000 300,000 4,000 100,000 a. Consolidation entries *TL Investment in Herman Correct Land (To eliminate intra-entity gain created by previous intra-ordity transfor) II "G Retained eamings, 1/1/18 Correct Cost of goods sold (To remove intra-ordity inventory grosa profit from prior year so it can be properly recognized in current year) Common stock (Herman) Correct Retained eamings, 1/1/18 (Herman) Investment in Hemman Noncontrolling interest in Herman (To eliminato Herman's stockholders' equity accounts and to record beginning of your balance for noncontrolling interest) Patents Correct Customer list Investment in Herman Noncontrolling interest (To recognize cnamorfized balances as of 1/118 d amounts allocated within original acquisition price) + Equity Income of Herman Correct Investment in Herman (To eliminate intra-entity equity income accrue) Investment in Herman Correct Dividends declared (To eliminate intra-endly dividend declaration) -5 -6 17 18 19 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 GA Amortization expense Correct! Patents Customer list (To recognize current year amortization experie) P Accounts payable Correct Accounts receivable (To remove intra-entity debt created by invertory transfor) B Bonds payable Correct Premium on bonds payable Interest income Investment in parent bonds Interest expense Gain on retirement of bond (To eliminate affect created by bond acquisition and recognize the site retirement gain) TI Sales Cerruti Cost of goods sold (or purchases) To eliminate intra-entity transformade during current year IN Cost of goods sold Conect Inventory (To deferindo-entity profits in ending inventory b. Calculations 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 Herman's reported income for 2018 Excess fair value amortization 2017 intra-entity gross profit recognized in 2018 2018 deferred Intra-entity gross profit Herman's realized net income for 2018 Noncontrolling interest ownership Net Income attributable to noncontrolling interest Noncontrolling Interest, 1/1/18 Noncontrolling interest's share of Herman's net income Noncontrolling interest's share of Herman's dividends Noncontrolling interest, 12/31/18 c. Consolidation worksheet adjustments - intra-entity bonds Original gain on retirement Interest income recorded on investment in 2018 Interest expense recorded on liability in 2018 Required increase as of January 1, 2019 Bonds payable Premium on bonds payable Interest Income Investment in Herman Investment in Fred's bonds Interest expense To remove accounts parting to intre entity bonde. This added her mother than and comings because equity method is used and the gains buted to them)