Question
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $540,000 in cash. The subsidiary's stockholders' equity accounts totaled $524,000
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $540,000 in cash. The subsidiary's stockholders' equity accounts totaled $524,000 and the noncontrolling interest had a fair value of $60,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $32,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life).
Brey reported net income from its own operations of $86,000 in 2016 and $102,000 in 2017. Brey declared dividends of $30,000 in 2016 and $34,000 in 2017.
Year | Cost to Brey | Transfer Price to Pitino | Inventory Remaining at Year-End (at transfer price) | ||||||
2016 | $ | 91,000 | $ | 225,000 | $ | 47,000 | |||
2017 | 122,500 | 245,000 | 59,500 | ||||||
2018 | 135,000 | 270,000 | 50,000 | ||||||
At December 31, 2018, Pitino owes Brey $38,000 for inventory acquired during the period.
The following separate account balances are for these two companies for December 31, 2018, and the year then ended.
Note: Parentheses indicate a credit balance.
Pitino | Brey | ||||||
Sales revenues | $ | (906,000 | ) | $ | (476,000 | ) | |
Cost of goods sold | 537,000 | 231,000 | |||||
Expenses | 187,600 | 102,000 | |||||
Equity in earnings of Brey | (120,195 | ) | 0 | ||||
Net income | $ | (301,595 | ) | $ | (143,000 | ) | |
Retained earnings, 1/1/18 | $ | (532,000 | ) | $ | (322,000 | ) | |
Net income (above) | (301,595 | ) | (143,000 | ) | |||
Dividends declared | 151,000 | 58,000 | |||||
Retained earnings, 12/31/18 | $ | (682,595 | ) | $ | (407,000 | ) | |
Cash and receivables | $ | 168,000 | $ | 120,000 | |||
Inventory | 365,000 | 280,000 | |||||
Investment in Brey | 667,260 | 0 | |||||
Land, buildings, and equipment (net) | 986,000 | 350,000 | |||||
Total assets | $ | 2,186,260 | $ | 750,000 | |||
Liabilities | $ | (878,665 | ) | $ | (17,000 | ) | |
Common stock | (625,000 | ) | (326,000 | ) | |||
Retained earnings, 12/31/18 | (682,595 | ) | (407,000 | ) | |||
Total liabilities and equity | $ | (2,186,260 | ) | $ | (750,000 | ) |
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What was the annual amortization resulting from the acquisition-date fair-value allocations?
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Were the intra-entity transfers upstream or downstream?
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What intra-entity gross profit in inventory existed as of January 1, 2018?
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What intra-entity gross profit in inventory existed as of December 31, 2018?
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What amounts make up the $120,195 Equity Earnings of Brey account balance for 2018?
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What is the net income attributable to the noncontrolling interest for 2018?
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What amounts make up the $667,260 Investment in Brey account balance as of December 31, 2018?
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Prepare the 2018 worksheet entry to eliminate the subsidiarys beginning owners equity balances.
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Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.
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