Question

1 Approved Answer

Posted on Sep 07, 2024

In January 1, 2019, Strolle Company acquired an 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of

image text in transcribed

In January 1, 2019, Strolle Company acquired an 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of Hailey's Stockholders' Equity on the acquisition date. Spring uses the equity method to account for its investment in Hailey. Strolle assigned the acquisition-date AAP as follows: 30 Points AAP Items Patent Goodwill Initial Fair Value 350,000 150,000 $500,000 Useful Life (years) 10 Indefinite Hailey sells inventory to Strolle (upstream) which includes that inventory in products that it (Strolle), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2024 and 2025: 2024 2025 Transfer price for inventory sale $305,500 $500,000 Cost of goods sold -259,675 -440,000 Gross profit $45,825 60,000 % inventory remaining 50% 40% Gross profit deferred $22,913 $24,000 EOY Receivable/Payable S42,000 $18,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. Strolle and Hailey report the following financial statements at December 31, 2025: Income Statement Strolle Sales $4,500,000 Cost of goods sold -3,825,000 Gross Profit 675,000 Income (loss) from subsidiary 13,939 Operating expenses -323,000 Net income $365.939 Hailey $750,000 (660,000) 90,000 -34,000 $56.00.0 Statement of Retained Earnings Strolle BOY Retained Earnings $4,465,000 Net income 365,939 Dividends -105.400 EOY Retained Earnings $4.725.539 Hailey $440,000 56,000 -10,000 S486.0.0.0 Balance Sheet Strolls Hailey Assets: Cash Accounts receivable Inventory Equity Investment PPE, net $425,000 545,000 425,000 $420,000 304,000 654,000 782,600 6,723,539 $8,884,139 420,000 $1,815.000 Liabilities and Stockholders' Equity: Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings $340,000 1,750,000 853,600 1,215,000 4,725,539 $8.884.139 $175,000 753,000 92,100 308,900 486,000 $1.815.000 Required: a. Compute the EOY noncontrolling interest equity balance. b. Prepare the consolidation journal entries as of December 31, 2025: B In January 1, 2019, Strolle Company acquired an 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of Hailey's Stockholders' Equity on the acquisition date. Spring uses the equity method to account for its investment in Hailey. Strolle assigned the acquisition-date AAP as follows: 30 Points AAP Items Patent Goodwill Initial Fair Value 350,000 150,000 $500,000 Useful Life (years) 10 Indefinite Hailey sells inventory to Strolle (upstream) which includes that inventory in products that it (Strolle), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2024 and 2025: 2024 2025 Transfer price for inventory sale $305,500 $500,000 Cost of goods sold -259,675 -440,000 Gross profit $45,825 60,000 % inventory remaining 50% 40% Gross profit deferred $22,913 $24,000 EOY Receivable/Payable S42,000 $18,000 The inventory not remaining at the end of the year has been sold outside of the controlled group. Strolle and Hailey report the following financial statements at December 31, 2025: Income Statement Strolle Sales $4,500,000 Cost of goods sold -3,825,000 Gross Profit 675,000 Income (loss) from subsidiary 13,939 Operating expenses -323,000 Net income $365.939 Hailey $750,000 (660,000) 90,000 -34,000 $56.00.0 Statement of Retained Earnings Strolle BOY Retained Earnings $4,465,000 Net income 365,939 Dividends -105.400 EOY Retained Earnings $4.725.539 Hailey $440,000 56,000 -10,000 S486.0.0.0 Balance Sheet Strolls Hailey Assets: Cash Accounts receivable Inventory Equity Investment PPE, net $425,000 545,000 425,000 $420,000 304,000 654,000 782,600 6,723,539 $8,884,139 420,000 $1,815.000 Liabilities and Stockholders' Equity: Current Liabilities Long-term Liabilities Common Stock APIC Retained Earnings $340,000 1,750,000 853,600 1,215,000 4,725,539 $8.884.139 $175,000 753,000 92,100 308,900 486,000 $1.815.000 Required: a. Compute the EOY noncontrolling interest equity balance. b. Prepare the consolidation journal entries as of December 31, 2025: B