On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $392,400. Stinson's book value on that
On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $392,400. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and an unrecorded customer list (15-year remaining life) assessed at a $57,000 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.
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 | $130,800 | $163,500 | $54,500 |
| 2018 | 113,400 | 151,200 | 37,800 |
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The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow:
| | McIlroy, Inc. | | Stinson, Inc. |
| Sales | $ | (741,000 | ) | | $ | (377,000 | ) |
| Cost of goods sold | | 487,000 | | | | 230,200 | |
| Operating expenses | | 199,020 | | | | 78,400 | |
| Equity in earnings in Stinson | | (35,308 | ) | | | 0 | |
| Net income | $ | (90,288 | ) | | $ | (68,400 | ) |
| Retained earnings, 1/1/18 | $ | (792,000 | ) | | $ | (283,800 | ) |
| Net income | | (90,288 | ) | | | (68,400 | ) |
| Dividends declared | | 49,100 | | | | 19,600 | |
| Retained earnings, 12/31/18 | $ | (833,188 | ) | | $ | (332,600 | ) |
| Cash and receivables | $ | 283,600 | | | $ | 151,400 | |
| Inventory | | 266,400 | | | | 132,000 | |
| Investment in Stinson | | 429,006 | | | | 0 | |
| Buildings (net) | | 347,000 | | | | 206,500 | |
| Equipment (net) | | 247,700 | | | | 90,100 | |
| Patents (net) | | 0 | | | | 24,800 | |
| Total assets | $ | 1,573,706 | | | $ | 604,800 | |
| Liabilities | $ | (440,518 | ) | | $ | (172,200 | ) |
| Common stock | | (300,000 | ) | | | (100,000 | ) |
| Retained earnings, 12/31/18 | | (833,188 | ) | | | (332,600 | ) |
| Total liabilities and equities | $ | (1,573,706 | ) | | $ | (604,800 | ) |
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Show how McIlroy determined the $429,006 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinsons income.
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Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.
Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Show how McIlroy determined the $429,006 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. 392,400 Consideration transferred Increase in Stinson's retained earnings 1/1/17 to 1/1/18 Excess fair value amortization 2017 ending inventory profit deferral Mcllroy's equity in earnings of Stinson for 2018 Stinson 2015 dividends declared to Mcllroy $ 30,780 (6,000) (11,970) 12,810 35,308 (9,000) Investment account balance 12/31/18 431.518 ( Required A Required B . Complete this question by entering your answers in the tabs below. Required A Required B Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with a minus sign.) Show less A Accounts MCILROY, INC., AND STINSON, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Stinson Debit Credit $ (377,000) $ 151,200 230,200 9,450 162,100 78,400 11,970 0 35,308 NCI $ Mcllroy (741,000) 487,000 199,020 (35,308) Consolidated Totals $ (966,800) 564,550 289,390 Sales Cost of goods sold Operating expenses Equity in earnings of Stinson Separate company net income Consolidated net income To noncontrolling I interact 0 (90,288) (68,400) $ (112,860) 22,572 (22,572) $ (22,572) 283,800 11,760 7,840 $ $ $ $ (792,000) (90,288) 49,100 (833,188) 283,600 266,400 429,006 347,000 247,700 0 Consolidated net income To noncontrolling interest To Mcllroy, Inc. Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 Cash and receivables Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total assets Liabilities Common stock Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 Total liabilities and equities (283,800) (68,400) 19,600 (332,600) 151,400 132,000 0 206,500 90,100 24,800 9,450 440,766 X (112,860) 22,572 (90,288) (792,000) (90,288) 49,700 X (832,588) 435,000 388,950 00 553,500 337,800 98,330 X 53,080 183,400 2,050,060 (612,718) (300,000) 11,760 81,700 X 57,000 183,400 8,170 3,920 $ $ $ 1,573,706 (440,518) (300,000) 604,800 (172,200) (100,000) 100,000 289,422 (289,422) $ (304,154) (833,188) $ (1,573,706) (332,600) (604,800) (304,154) (833,188) $ (2,050,060) $ $ 925,588 $ 925,588 Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Show how McIlroy determined the $429,006 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. 392,400 Consideration transferred Increase in Stinson's retained earnings 1/1/17 to 1/1/18 Excess fair value amortization 2017 ending inventory profit deferral Mcllroy's equity in earnings of Stinson for 2018 Stinson 2015 dividends declared to Mcllroy $ 30,780 (6,000) (11,970) 12,810 35,308 (9,000) Investment account balance 12/31/18 431.518 ( Required A Required B . Complete this question by entering your answers in the tabs below. Required A Required B Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with a minus sign.) Show less A Accounts MCILROY, INC., AND STINSON, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Stinson Debit Credit $ (377,000) $ 151,200 230,200 9,450 162,100 78,400 11,970 0 35,308 NCI $ Mcllroy (741,000) 487,000 199,020 (35,308) Consolidated Totals $ (966,800) 564,550 289,390 Sales Cost of goods sold Operating expenses Equity in earnings of Stinson Separate company net income Consolidated net income To noncontrolling I interact 0 (90,288) (68,400) $ (112,860) 22,572 (22,572) $ (22,572) 283,800 11,760 7,840 $ $ $ $ (792,000) (90,288) 49,100 (833,188) 283,600 266,400 429,006 347,000 247,700 0 Consolidated net income To noncontrolling interest To Mcllroy, Inc. Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31 Cash and receivables Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total assets Liabilities Common stock Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 Total liabilities and equities (283,800) (68,400) 19,600 (332,600) 151,400 132,000 0 206,500 90,100 24,800 9,450 440,766 X (112,860) 22,572 (90,288) (792,000) (90,288) 49,700 X (832,588) 435,000 388,950 00 553,500 337,800 98,330 X 53,080 183,400 2,050,060 (612,718) (300,000) 11,760 81,700 X 57,000 183,400 8,170 3,920 $ $ $ 1,573,706 (440,518) (300,000) 604,800 (172,200) (100,000) 100,000 289,422 (289,422) $ (304,154) (833,188) $ (1,573,706) (332,600) (604,800) (304,154) (833,188) $ (2,050,060) $ $ 925,588 $ 925,588
