On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $420,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $248,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $280,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $87,100 and an unrecorded customer list (15-year remaining life) assessed at a $63,000 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.

D F G 1 Intra-entity inventory sales between the two companies have been made as follows: Transfer Cost to Price to Ending Balance (at 2 Year Mclroy Stinson transfer price) 3 2017 138000 172500 57500 4 2018 112800 150400 37600 5 The individual financial statements for these two companies as of December 31, 2018, and the year then A) Show how Mcllroy determined the $448,688 Investment in Stinson account 6 ended follow: balance. Assume that Mcllroy defers 100 percent of downstream intra-entity profits 7 Mcllroy Inc Stinson Inc against its share of Stinson's income. 8 Sales $ (760,000) $ (399,000) Consideration Transferred 420,000 9 Cost of goods sold $ 499,500 $ 243,400 Increase in stinsons Retained Earnings 1/1/17 to 1/1/18 10 Operating expenses $ 202,710 $ 82,800 Excess fair value amortization 11 Rquity in earnings in Stinson $ (38,034) $ 2017 Ending Inventory Profit Deferral 12 Net Income $ (95,824) $ (72,800) Mcllroys equity in earnings of stinson for 2018 13 Retained Earnings 1/1/18 $ (829,700) S (286, 100) Stinson 2018 dividends declared to Mcllroy 14 Net Income $ (95,824) $ (72,800) Investment Account Balance 12/31/18 15 Dividends Declared $ 51,300 $ 21,300 16 Retained Earnings 12/31/18 $ (874,224) $ (337,600) 17 Cash and Receivables $ 297,100 $ 153,700 18 Inventory $ 279,100 $ 133,900 19 Investment in Stinson $ 448,688 $ 20 Buildings (net) $ 370,000 $ 208,500 21 Equipment (net) $ 264,000 S 92,100 22 Patents (net) $ $ 26,800 23 Total Assets $ 1,658,888 $ 615,000 24 Liab. $ (484,664) $ (177,400) 25 Common Stock $ (300,000) $ (100,000) 26 Retained Earnings 12/31/18 (874,224) $ (337,600) 27 Total Liab. And Equities S 1,658,888 S (615,000) 28 29 30 31 32