On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $325,200. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $192,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $216,800. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $74,200 and an unrecorded customer list (15-year remaining life) assessed at a $50,100 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:

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

1. Show how McIlroy determined the $384,548 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.

Year 2017 2018 Cost to McIlroy $124, 200 112,800 Transfer Price to Stinson $ 155, 250 150,400 Ending Balance (at transfer price) $51,750 37,600 Stinson, Inc. $ (353,000) 215,800 73,600 Sales Cost of goods sold Operating expenses Equity in earnings in Stinson Net income Retained earnings, 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Total assets Liabilities Common stock Retained earnings, 12/31/18 Total liabilities and equities McIlroy, Inc. $ (715,000) 469,900 193,210 (32,654) $ (84,544) $ (754,700) (84,544) 46,500 $ (792,744) 270,200 253,800 384,548 325,000 232,100 $ (63,600) $ (281,300) (63,600) 16,500 $ (328,400) $ 149,600 130,400 0 203,600 87,000 21,700 $ 592,300 $ (163,900) (100,000) (328,400) $ (592,300) 0 $ 1,465,648 $ (372,904) (300,000) (792,744) $(1,465,648) Required A Required B Show how McIlroy determined the $384,548 Investment in Stinson account balance. Assume that McIl of downstream intra-entity profits against its share of Stinson's income. 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 2018 dividends declared to Mcllroy Investment account balance 12/31/18