On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $312,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $184,400. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $208,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $83,200 and an unrecorded customer list (15-year remaining life) was assessed at a $58,800 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since its 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	$132,900	$166,125	$55,375
2018	113,100	150,800	37,700

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

	McIlroy, Inc.				Stinson, Inc.
Sales	$	(747,000	)		$	(382,000	)
Cost of goods sold		490,900				233,200
Operating expenses		200,590				79,400
Equity in earnings in Stinson		(35,946	)			0
Net income	$	(91,456	)		$	(69,400	)
Retained earnings, 1/1/18	$	(814,500	)		$	(284,300	)
Net income		(91,456	)			(69,400	)
Dividends declared		49,700				20,000
Retained earnings, 12/31/18	$	(856,256	)		$	(333,700	)
Cash and receivables	$	291,900			$	151,900
Inventory		274,200				132,400
Investment in Stinson		377,467				0
Buildings (net)		353,000				207,200
Equipment (net)		251,900				90,600
Patents (net)		0				25,300
Total assets	$	1,548,467			$	607,400
Liabilities	$	(392,211	)		$	(173,700	)
Common stock		(300,000	)			(100,000	)
Retained earnings, 12/31/18		(856,256	)			(333,700	)
Total liabilities and equities	$	(1,548,467	)		$	(607,400	)

1. Show how McIlroy determined the $377,467 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.

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

Consolidation EntriesAccountsMcIlroyStinsonDebitCreditNCIConsolidated Totals

Sales$(747,000)$(382,000)

Cost of goods sold490,900233,200

Operating expenses200,59079,400

Equity in earnings of Stinson(35,946)0

Separate company net income(91,456)(69,400)

Consolidated net income$0

To noncontrolling interest

To McIlroy, Inc.0

Retained earnings, 1/1(814,500)(284,300)

Net income(91,456)(69,400)

Dividends declared49,700 20,000

Retained earnings, 12/31$(856,256)$(333,700)$0

Cash and receivables$291,900$151,900

Inventory274,200132,400

Investment in Stinson377,4670

Buildings (net)353,000207,200

Equipment (net)251,90090,600

Patents (net)025,300Customer listGoodwill

Total assets$1,548,467$607,400$0

Liabilities(392,211)(173,700)

Common stock(300,000)(100,000)

Noncontrolling interest 1/1Noncontrolling interest 12/31

Retained earnings, 12/31(856,256)(333,700)

Total liabilities and equities$(1,548,467)$(607,400)$0$0$0