Question
On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that
On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $219,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $79,300 and an unrecorded customer list (15-year remaining life) assessed at a $54,900 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) |
2020 | $127,800 | $159,750 | $53,250 |
2021 | 112,800 | 150,400 | 37,600 |
The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:
McIlroy, Inc. | Stinson, Inc. | ||||||
Sales | $ | (736,000 | ) | $ | (368,000 | ) | |
Cost of goods sold | 483,700 | 224,800 | |||||
Operating expenses | 198,540 | 76,600 | |||||
Equity in earnings in Stinson | (34,256 | ) | 0 | ||||
Net income | $ | (88,016 | ) | $ | (66,600 | ) | |
Retained earnings, 1/1/21 | $ | (780,200 | ) | $ | (283,000 | ) | |
Net income | (88,016 | ) | (66,600 | ) | |||
Dividends declared | 48,300 | 19,000 | |||||
Retained earnings, 12/31/21 | $ | (819,916 | ) | $ | (330,600 | ) | |
Cash and receivables | $ | 279,400 | $ | 150,500 | |||
Inventory | 262,400 | 131,200 | |||||
Investment in Stinson | 415,112 | 0 | |||||
Buildings (net) | 339,000 | 205,600 | |||||
Equipment (net) | 242,000 | 89,400 | |||||
Patents (net) | 0 | 24,000 | |||||
Total assets | $ | 1,537,912 | $ | 600,700 | |||
Liabilities | $ | (417,996 | ) | $ | (170,100 | ) | |
Common stock | (300,000 | ) | (100,000 | ) | |||
Retained earnings, 12/31/21 | (819,916 | ) | (330,600 | ) | |||
Total liabilities and equities | $ | (1,537,912 | ) | $ | (600,700 | ) | |
(Note: Parentheses indicate a credit balance.)
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Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
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