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. 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.

   Consideration transferred
   Increase in Stinsons retained earnings 1/1/17 to 1/1/18
   Excess fair value amortization
   2017 ending inventory profit deferral		0
   McIlroys equity in earnings of Stinson for 2018
   Stinson 2015 dividends declared to McIlroy
   Investment account balance 12/31/18		$0