On January 1, 2014, McIIroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000, and an unrecorded customer list (15 year remaining life) assessed at a $45,000 fair value. Any remaining excess acquistion date fair value was assigned to goodwill. Since acquistion, McIIroy has applied the equity method to its investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows:

Year Cost to McIIroy Transfer price to Stinson Ending Balance (at transfer price)

2014 $120,000 $150,000 $50,000

2015 $112,000 $160,000 $40,000

The individual financial statements for these two companies as of December 31, 2015 and the year then ended follow:

McIIroy, Inc. Stinson, Inc.

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating expenses 188,000 70,000

Equity earnings in Stinson (28000) 0

Net income $(80,000) $(60,000)

Retained earnings 1/1/15 $(695,000) $(280,000)

Net income(above) (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12-31-15 $(730,000) $(325,000)

Cash & receivables $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Buildings (net) 308,000 202,000

Equipment (net) 220,000 86,000

Patents (net) 0 20,000

Total assets $1,420,000 $585,000

Liabilities $(390,000) $(160,000)

Common Stock (300,000) (100,000)

Retained earnings 12-31-15 (730,000) (325,000)

Total liabilities & equities $(1,420,000) $(585,000)

a. Show how McIIroy determined the $411,000 investment in Stinson account balance. Assume that McIIroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income (amounts to be deducted should be indicated with a minus sign.)

Consideration transferred _______________________________

Increase in Stinson's retained earnings 1/1/14 to 1/1/15______________________________

Excess fair value amortization _________________________________

2014 ending inventory profit deferral_____________________________

McIIroy's equity in earnings of Stinson for 2015_____________________

Stinson 2015 dividends declared to McIIroy________________________

Investment account balance 12/31/15_____________________________

b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of Dec. 31, 2015.

Accounts McIIroy Stinson Debit Credit Non Controlling Interest Consolidation total

Sales $(700,000) $(335,000)

COGs 460,000 205,000

Operating exps 188,000 70,000

Equity in earnings of Stinson (28,000) 0

Seperate co. net income (80,000) (60,000)

Cons. net income

To NCI

To parent

Retained earnings 1/1 $(695,000) $(280,000)

Net income (80,000) (60,000)

Dividends declared 45,000 15,000

Retained earnings 12/31 (730,000) (325,000)

Cash & Rec's $248,000 $148,000

Inventory 233,000 129,000

Investment in Stinson 411,000 0

Bldgs (net) 308,000 202,000

Equip(net) 220,000 86,000

Patents(net) 0 20,000

Customer list

Goodwill

Total Assets $1,420,000 $585,000

Liabilities (390,000) (160,000)

Common Stock 300,000 100,000

NCI 1/1

NCI 12/31

Retained earnings 12/31 (730,000) (325,000)

Total Liabilities & equity $(1,420,000) $(585,000)