On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $327,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $193,400. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $218,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $72,700 and an unrecorded customer list (15-year remaining life) assessed at a $48,600 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy 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 McIlroy	Transfer Price to Stinson	Ending Balance (at transfer price)
2017	$122,700	$153,375	$51,125
2018	113,400	151,200	37,800

The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow:

	McIlroy, Inc.				Stinson, Inc.
Sales	$	(708,000	)		$	(347,000	)
Cost of goods sold		465,300				212,200
Operating expenses		191,585				72,400
Equity in earnings in Stinson		(31,909	)			0
Net income	$	(83,024	)		$	(62,400	)
Retained earnings, 1/1/18	$	(742,300	)		$	(280,900	)
Net income		(83,024	)			(62,400	)
Dividends declared		46,000				15,900
Retained earnings, 12/31/18	$	(779,324	)		$	(327,400	)
Cash and receivables	$	265,700			$	149,100
Inventory		249,600				129,900
Investment in Stinson		385,338				0
Buildings (net)		318,000				203,200
Equipment (net)		227,100				86,800
Patents (net)		0				21,000
Total assets	$	1,445,738			$	590,000
Liabilities	$	(366,414	)		$	(162,600	)
Common stock		(300,000	)			(100,000	)
Retained earnings, 12/31/18		(779,324	)			(327,400	)
Total liabilities and equities	$	(1,445,738	)		$	(590,000	)

1. Show how McIlroy determined the $385,338 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinsons income.

2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.

Show how McIlroy determined the $385,338 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. Consideration transferred 327,000 ease in Stinson's retained eamings 1/1/17 to $52,500 1/1/18 Excess fair value amortization (6,306) 2017 ending inventory profit deferral (10,225) 35,969 (29,741)x Mcllroy's equity in eamings of Stinson for 2018 9,540 x Stinson 2015 dividends declared to Mcllroy Investment account balance 12/31/18 342.768 Answer is not complete. MCILROY, INC., AND STINSON, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Consolidated Credit NCI Accounts Mcllroy Stinson Debit Totals Sales (708,000) (347,000) (1,055,000) Cost of goods sold 677,500x 465,300 212,200 0 263,985 Operating expenses 191,585 72,400 0 Equity in earnings of Stinson Separate company net income (31,909) 0 (62,400 (83,024) Consolidated net income (113,515) To noncontrolling interest To Mcllroy, Inc. (113,515) Retained earnings, 1/1 (742,300 0 (280,900) (1,023,200) Net income (145,424)x (62.400) 0 (83,024) 61,900 x 61,900 x Dividends declared 46,000 15.900 (779,324 Retained earnings, 12/31 (1,106,724) (327,400) 414,800 Cash and receivables 265,700 149,100 Inventory 379.500 249,600 129.900 Investment in Stinson 385,338 C 0 521,200 Buildings (net) 318,000 203.200 Equipment (net) Patents (net) 86.800 227,100 313,900 0 21,000 21.000 0 Customer list 0 Goodwill Total assets 1445,738 590,000 1,650,400 0 (366,414) (162,600) Liabilities (529,014) Common stock (300,000) (100,000) 100,000 (300,000) Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 (779,324) (327,400) (1,106.724) Total liabilities and $ (1,935,738) $(1.445,738) (590,000) 100,000 equities