On January 1, 2017, Mcllroy, 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 $87100 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, Mcllroy 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 Ending Balance (at transfer price) Year Cost to McIlroy 2017 2018 13 , 112,800 Transfer Price to Stinson $172,500 150,400 $ $57,500 37,600 $138,000 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: Stinson, Inc. (399,000) 243,400 McIlroy, Inc. $ (760,000) Sales Cost of goods sold Operating expenses Equity in earnings in Stinson 499,500 202,710 (38,034) 82,800 $ (95,824) $ (829,700) $ (72,800) $ (286,100) Net income Retained earnings, 1/1/18 Net income Dividends declared (95,824) 51,300 (72,800) 21,300 Retained earnings, 12/31/18 $ (874,224) $ 297,100 $ (337,600) $ 153,700 Cash and receivables Inventory Investment in Stinson 279,100 448,688 133,900 On January 1, 2017, Mcllroy, 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 $87100 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, Mcllroy 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 Ending Balance (at transfer price) Year Cost to McIlroy 2017 2018 13 , 112,800 Transfer Price to Stinson $172,500 150,400 $ $57,500 37,600 $138,000 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: Stinson, Inc. (399,000) 243,400 McIlroy, Inc. $ (760,000) Sales Cost of goods sold Operating expenses Equity in earnings in Stinson 499,500 202,710 (38,034) 82,800 $ (95,824) $ (829,700) $ (72,800) $ (286,100) Net income Retained earnings, 1/1/18 Net income Dividends declared (95,824) 51,300 (72,800) 21,300 Retained earnings, 12/31/18 $ (874,224) $ 297,100 $ (337,600) $ 153,700 Cash and receivables Inventory Investment in Stinson 279,100 448,688 133,900
