Problem 5-27 (LO 5-1, 5-2, 5-3, 5-4, 5-5, 5-7)

Pitino acquired 90 percent of Breys outstanding shares on January 1, 2013, in exchange for $423,000 in cash. The subsidiarys stockholders equity accounts totaled $407,000 and the noncontrolling interest had a fair value of $47,000 on that day. However, a building (with a ten-year remaining life) in Breys accounting records was undervalued by $31,000. 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 $73,000 in 2013 and $89,000 in 2014. Brey declared dividends of $23,500 in 2013 and $27,500 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	$	78,000		$	160,000		$	34,000
2014		90,000			180,000			46,500
2015		123,000			205,000			40,000

At December 31, 2015, Pitino owes Brey $25,000 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	$	(880,000	)	$	(411,000	)
Cost of goods sold		524,000			218,000
Expenses		186,300			76,000
Equity in earnings of Brey		(101,835	)		0
Net income	$	(271,535	)	$	(117,000	)
Retained earnings, 1/1/15	$	(506,000	)	$	(296,000	)
Net income (above)		(271,535	)		(117,000	)
Dividends declared		138,000			28,000
Retained earnings, 12/31/15	$	(639,535	)	$	(385,000	)
Cash and receivables	$	155,000		$	107,000
Inventory		300,000			181,000
Investment in Brey		558,630			0
Land, buildings, and equipment (net)		973,000			337,000
Total assets	$	1,986,630		$	625,000
Liabilities	$	(787,095	)	$	(18,000	)
Common stock		(560,000	)		(222,000	)
Retained earnings, 12/31/15		(639,535	)		(385,000	)
Total liabilities and equity	$	(1,986,630	)	$	(625,000	)

a.	What was the annual amortization resulting from the acquisition-date fair-value allocations?

b.	Were the intra-entity transfers upstream or downstream?
	Upstream Downstream

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 $101,835 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 $558,630 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.