Question
Pitino acquired 90 percent of Breys outstanding shares on January 1, 2013, in exchange for $504,000 in cash. The subsidiarys stockholders equity accounts totaled $488,000
Pitino acquired 90 percent of Breys outstanding shares on January 1, 2013, in exchange for $504,000 in cash. The subsidiarys stockholders equity accounts totaled $488,000 and the noncontrolling interest had a fair value of $56,000 on that day. However, a building (with a ten-year remaining life) in Breys accounting records was undervalued by $49,000. Pitino assigned the rest of the excess fair value over book value to Breys patented technology (four-year remaining life). |
Brey reported net income from its own operations of $82,000 in 2013 and $98,000 in 2014. Brey declared dividends of $28,000 in 2013 and $32,000 in 2014. |
Brey sells inventory to Pitino as follows: |
Year | Cost to Brey | Transfer Price to Pitino | Inventory Remaining at Year-End (at transfer price) | ||||||
2013 | $ | 87,000 | $ | 205,000 | $ | 43,000 | |||
2014 | 146,250 | 225,000 | 55,000 | ||||||
2015 | 137,500 | 250,000 | 50,000 | ||||||
At December 31, 2015, Pitino owes Brey $34,000 for inventory acquired during the period. |
The following separate account balances are for these two companies for December 31, 2015, and the year then ended. Note: Parentheses indicate a credit balance. |
Pitino | Brey | |||||
Sales revenues | $ | (898,000 | ) | $ | (456,000 | ) |
Cost of goods sold | 533,000 | 227,000 | ||||
Expenses | 187,200 | 94,000 | ||||
Equity in earnings of Brey | (108,990 | ) | 0 | |||
Net income | $ | (286,790 | ) | $ | (135,000 | ) |
Retained earnings, 1/1/15 | $ | (524,000 | ) | $ | (314,000 | ) |
Net income (above) | (286,790 | ) | (135,000 | ) | ||
Dividends declared | 147,000 | 54,000 | ||||
Retained earnings, 12/31/15 | $ | (663,790 | ) | $ | (395,000 | ) |
Cash and receivables | $ | 164,000 | $ | 116,000 | ||
Inventory | 345,000 | 250,000 | ||||
Investment in Brey | 635,895 | 0 | ||||
Land, buildings, and equipment (net) | 982,000 | 346,000 | ||||
Total assets | $ | 2,126,895 | $ | 712,000 | ||
Liabilities | $ | (858,105 | ) | $ | (23,000 | ) |
Common stock | (605,000 | ) | (294,000 | ) | ||
Retained earnings, 12/31/15 | (663,790 | ) | (395,000 | ) | ||
Total liabilities and equity | $ | (2,126,895 | ) | $ | (712,000 | ) |
a. | What was the annual amortization resulting from the acquisition-date fair-value allocations? |
b. | Were the intra-entity transfers upstream or downstream? | ||||
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c. | What unrealized gross profit existed as of January 1, 2015? |
d. | What unrealized gross profit existed as of December 31, 2015? |
e. | What amounts make up the $108,990 equity earnings of Brey account balance for 2015? |
f. | What is the net income attributable to the noncontrolling interest for 2015? |
g. | What amounts make up the $635,895 Investment in Brey account balance as of December 31, 2015? |
h. | Prepare the 2015 worksheet entry to eliminate the subsidiarys beginning owners equity balances. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) |
i. | Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies. |
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