Problem 5-28 (Algo) (LO 5-1, 5-2, 5-3, 5-4, 5-5, 5-7)

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, in exchange for $513,000 in cash. The subsidiary's stockholders' equity accounts totaled $497,000, and the noncontrolling interest had a fair value of $57,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $51,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).

Brey reported net income from its own operations of $83,000 in 2019 and $99,000 in 2020. Brey declared dividends of $28,500 in 2019 and $32,500 in 2020.

Brey sells inventory to Pitino as follows:

Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price)

2019 $ 88,000 $ 210,000 $ 44,000

2020 161,000 230,000 56,500

2021 127,500 255,000 55,000

At December 31, 2021, Pitino owes Brey $35,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2021, and the year then ended.

Note: Parentheses indicate a credit balance.

Pitino Brey

Sales revenues $ (900,000 ) $ (461,000 )

Cost of goods sold 534,000 228,000

Expenses 187,300 96,000

Equity in earnings of Brey (105,255 ) 0

Net income $ (283,955 ) $ (137,000 )

Retained earnings, 1/1/21 $ (526,000 ) $ (316,000 )

Net income (above) (283,955 ) (137,000 )

Dividends declared 148,000 55,000

Retained earnings, 12/31/21 $ (661,955 ) $ (398,000 )

Cash and receivables $ 165,000 $ 117,000

Inventory 350,000 255,000

Investment in Brey 645,300 0

Land, buildings, and equipment (net) 983,000 347,000

Total assets $ 2,143,300 $ 719,000

Liabilities $ (871,345 ) $ (19,000 )

Common stock (610,000 ) (302,000 )

Retained earnings, 12/31/21 (661,955 ) (398,000 )

Total liabilities and equity $ (2,143,300 ) $ (719,000 )

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, 2021?

d. What intra-entity gross profit in inventory existed as of December 31, 2021?

e. What amounts make up the $105,255 Equity Earnings of Brey account balance for 2021?

f. What is the net income attributable to the noncontrolling interest for 2021?

g. What amounts make up the $645,300 Investment in Brey account balance as of December 31, 2021?

h. Prepare the 2021 worksheet entry to eliminate the subsidiarys beginning owners equity balances.

i. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.