On January 1, 2020 McDavid Company (McDavid) acquired a 60% interest in the common stock of Stacey Inc. (Stacey) for $372,000. Staceys book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40% noncontrolling interest $248,000. The subsidiary held patents (with a 10 year remaining life) that were undervalued within the companys accounting records by $70,000 and an unrecorded customer list (15 year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill. Since acquisition, McDavid has applied the equity method to its Investment in Stacey account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables.

The intra-entity inventory sales between the two companies have been made as follows:

a. Prepare a schedule showing the acquisition date fair value allocations including the allocation to goodwill (if any). Also, determine any annual amortizations for excess fair value assignments. Show your calculations.

b. Determine the gross profit held in ending inventory at December 31, 2020 and December 31, 2021. The gross profit represents the profit on intra-entity sales that have not been sold to parties outside the consolidated entity. Show your calculations.

c. McDavids Investment in Stacey balance is $411,000 at the end of 2021. Prepare a reconciliation from the date of acquisition to December 31, 2021 that explains this balance.

d. Prepare the worksheet journal entries that would be used to prepare the consolidated balance sheet as of December 31, 2021. Each journal entry should be labelled either by a letter or number to cross reference on the worksheet. Provide a short description for each journal entry.

e. Prepare a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference each journal entry on the worksheet.

Problems On January 1, 2020 McDavid Company (McDavid) acquired a 60% in the common stock of Stacey Inc. (Stacey) for $372,000. Stacey's book value on that date consisted of common stock of $100.000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40% noncontrolling interest 248,000. The subsidiary held patients with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000 unrecorded customer list (15 year remaining life) assessed at a 545.000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill Since acquisition McDavid has applied the equity method to its investment in Stacey account and so goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables The intra-entity inventory sales between the two companies have been made as follows Year Cost te McDavid Transfer Price to Ending Balance at Stacey transfer price $120,000 S150,000 S80 $112.000 SI60.000 McDavid defers 100% of its downstream intra-entity profits in the year of the sale. The individual financial statements for these two companies as of December 31, 2021 and the year then ended follow MeDavid De 56700.000 Sales Cost of goods sold Operating expenses Equity in earnings in Stassy Net Inco SC315.000 205.000 70 000 188.000 SERRA SERRAT Retained carnings, January 1, 2021 Neting Dividendis declared Retained carins. December 31, 2021 45 SOLO 41100 Cash and Riks Inventory Investment in Stacey Buildings (net Fonment Inch Patents(net) Total Ass SITES 2000 129.000 0 200.000 000 20000 MO SEAT ST16 100.000 Lilit Commstock Retained caring. December 31, 2021 Total liabilities and Stockholders' Equity ERRE SILENT SERRAT Required: a. Prepare a schedule showing the acquisition date fair value allocations including the allocation to goodwill (if any). Also, determine any annual amortizations for excess fair value assignments. Show your calculations. (4) b. Determine the gross profit held in ending inventory at December 31, 2020 and December 31, 2021. The gross profit represents the profit on intra-entity sales that have not been sold to parties outside the consolidated entity. Show your calculations. (2 points) 9 c. McDavid's Investment in Stacey" balance is $411,000 at the end of 2021. Prepare a reconciliation from the date of acquisition to December 31, 2021 that explains this balance. (3 points) d. Prepare the worksheet journal entries that would be used to prepare the consolidated balance sheet as of December 31, 2021. Each journal entry should be labelled either by a letter or number to cross reference on the worksheet. Provide a short description for each journal entry. (5 points) 10 Date Account Name Dr Cr e. Prepare a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference cach journal entry on the worksheet (10 points) c. Prepare a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference cach journal entry on the worksheet. (10 points) 11 Consolidation Entries Dr Cr NCI Consolidated Dric Drian Sales Cost of goods sold McDavid Stacey DrCr) Drar) (700,000) (335,000) 460,000 205,000 70,000 Operating expenses 188,000 Equity in earnings of Stacey (28.000) Separate company net income (80.000 Consolidated net income to noncontrolling interest to McDavid (60.000 Retained earnings, 1/1 Net income (above) Dividends declared Retained earnings, 12/31 (695,000) (280,000) (80,000) (60,000) 45.000 15.000 (230.000 (325.000 Cash and receivables Inventory Investment in Stacey 248.000 233,000 411,000 148,000 129,000 -0. 308,000 220,000 202.000 86,000 20,000 Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total assets 1420.000 585.000 Liabilities Common stock Noncontrolling interest 11 (390,000) (160,000) (300,000) (100,000) Noncontrolling interest 12/31 Retained earnings, 12/31 _7730.0001 325.0001 Total liabilities and equities (1.420.000 (585.000 Problems On January 1, 2020 McDavid Company (McDavid) acquired a 60% in the common stock of Stacey Inc. (Stacey) for $372,000. Stacey's book value on that date consisted of common stock of $100.000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40% noncontrolling interest 248,000. The subsidiary held patients with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000 unrecorded customer list (15 year remaining life) assessed at a 545.000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill Since acquisition McDavid has applied the equity method to its investment in Stacey account and so goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables The intra-entity inventory sales between the two companies have been made as follows Year Cost te McDavid Transfer Price to Ending Balance at Stacey transfer price $120,000 S150,000 S80 $112.000 SI60.000 McDavid defers 100% of its downstream intra-entity profits in the year of the sale. The individual financial statements for these two companies as of December 31, 2021 and the year then ended follow MeDavid De 56700.000 Sales Cost of goods sold Operating expenses Equity in earnings in Stassy Net Inco SC315.000 205.000 70 000 188.000 SERRA SERRAT Retained carnings, January 1, 2021 Neting Dividendis declared Retained carins. December 31, 2021 45 SOLO 41100 Cash and Riks Inventory Investment in Stacey Buildings (net Fonment Inch Patents(net) Total Ass SITES 2000 129.000 0 200.000 000 20000 MO SEAT ST16 100.000 Lilit Commstock Retained caring. December 31, 2021 Total liabilities and Stockholders' Equity ERRE SILENT SERRAT Required: a. Prepare a schedule showing the acquisition date fair value allocations including the allocation to goodwill (if any). Also, determine any annual amortizations for excess fair value assignments. Show your calculations. (4) b. Determine the gross profit held in ending inventory at December 31, 2020 and December 31, 2021. The gross profit represents the profit on intra-entity sales that have not been sold to parties outside the consolidated entity. Show your calculations. (2 points) 9 c. McDavid's Investment in Stacey" balance is $411,000 at the end of 2021. Prepare a reconciliation from the date of acquisition to December 31, 2021 that explains this balance. (3 points) d. Prepare the worksheet journal entries that would be used to prepare the consolidated balance sheet as of December 31, 2021. Each journal entry should be labelled either by a letter or number to cross reference on the worksheet. Provide a short description for each journal entry. (5 points) 10 Date Account Name Dr Cr e. Prepare a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference cach journal entry on the worksheet (10 points) c. Prepare a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference cach journal entry on the worksheet. (10 points) 11 Consolidation Entries Dr Cr NCI Consolidated Dric Drian Sales Cost of goods sold McDavid Stacey DrCr) Drar) (700,000) (335,000) 460,000 205,000 70,000 Operating expenses 188,000 Equity in earnings of Stacey (28.000) Separate company net income (80.000 Consolidated net income to noncontrolling interest to McDavid (60.000 Retained earnings, 1/1 Net income (above) Dividends declared Retained earnings, 12/31 (695,000) (280,000) (80,000) (60,000) 45.000 15.000 (230.000 (325.000 Cash and receivables Inventory Investment in Stacey 248.000 233,000 411,000 148,000 129,000 -0. 308,000 220,000 202.000 86,000 20,000 Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total assets 1420.000 585.000 Liabilities Common stock Noncontrolling interest 11 (390,000) (160,000) (300,000) (100,000) Noncontrolling interest 12/31 Retained earnings, 12/31 _7730.0001 325.0001 Total liabilities and equities (1.420.000 (585.000