Question
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $486,000 in cash. The subsidiary's stockholders' equity accounts totaled $470,000
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $486,000 in cash. The subsidiary's stockholders' equity accounts totaled $470,000 and the noncontrolling interest had a fair value of $54,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $45,000. 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 $80,000 in 2016 and $96,000 in 2017. Brey declared dividends of $27,000 in 2016 and $31,000 in 2017.
Year | Cost to Brey | Transfer Price to Pitino | Inventory Remaining at Year-End (at transfer price) | ||||||
2016 | $ | 85,000 | $ | 195,000 | $ | 41,000 | |||
2017 | 118,250 | 215,000 | 53,000 | ||||||
2018 | 156,000 | 240,000 | 40,000 | ||||||
At December 31, 2018, Pitino owes Brey $32,000 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 | $ | (894,000 | ) | $ | (446,000 | ) | |
Cost of goods sold | 531,000 | 225,000 | |||||
Expenses | 187,000 | 90,000 | |||||
Equity in earnings of Brey | (117,090 | ) | 0 | ||||
Net income | $ | (293,090 | ) | $ | (131,000 | ) | |
Retained earnings, 1/1/18 | $ | (520,000 | ) | $ | (310,000 | ) | |
Net income (above) | (293,090 | ) | (131,000 | ) | |||
Dividends declared | 145,000 | 52,000 | |||||
Retained earnings, 12/31/18 | $ | (668,090 | ) | $ | (389,000 | ) | |
Cash and receivables | $ | 162,000 | $ | 114,000 | |||
Inventory | 335,000 | 216,000 | |||||
Investment in Brey | 621,675 | 0 | |||||
Land, buildings, and equipment (net) | 980,000 | 344,000 | |||||
Total assets | $ | 2,098,675 | $ | 674,000 | |||
Liabilities | $ | (835,585 | ) | $ | (7,000 | ) | |
Common stock | (595,000 | ) | (278,000 | ) | |||
Retained earnings, 12/31/18 | (668,090 | ) | (389,000 | ) | |||
Total liabilities and equity | $ | (2,098,675 | ) | $ | (674,000 | ) | |
What was the annual amortization resulting from the acquisition-date fair-value allocations?
Were the intra-entity transfers upstream or downstream?
What intra-entity gross profit in inventory existed as of January 1, 2018?
What intra-entity gross profit in inventory existed as of December 31, 2018?
What amounts make up the $117,090 Equity Earnings of Brey account balance for 2018?
What is the net income attributable to the noncontrolling interest for 2018?
What amounts make up the $621,675 Investment in Brey account balance as of December 31, 2018?
Prepare the 2018 worksheet entry to eliminate the subsidiarys beginning owners equity balances.
Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.
a. What was the annual amortization resulting from the acquisition-date fair-value allocations? b. Were the intra-entity transfers upstream or downstream? c. What intra-entity gross profit in inventory existed as of January 1, 2018? d. What intra-entity gross profit in inventory existed as of December 31, 2018?
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e. What amounts make up the $117,090 Equity Earnings of Brey account balance for 2018?
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f. What is the net income attributable to the noncontrolling interest for 2018?
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g. What amounts make up the $621,675 Investment in Brey account balance as of December 31, 2018?
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h. Prepare the 2018 worksheet entry to eliminate the subsidiary's beginning owners' equity balances. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Consolidation Worksheet Entries
Note: Enter debits before credits.
i. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.
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