Problem 5-31 (LO 5-2, 5-3, 5-4,5-5) On January 1, 2017, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $384,600. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $227,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $256,400. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $77,800 and an unrecorded customer list (15-year remaining life) assessed at a $53,700 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, Mcllroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Transfer Price Ending Balance (at transfer price) $52,875 37,700 Cost to McIlroy $126,900 113,100 to Stinson Year 2017 $158,625 150,800 2018 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow Stinson, Inc McIlroy, Inc (730,000) 479,800 $ (366,000) 223,600 76,200 Sales S Cost of goods sold Operating expenses Equity in earnings in Stinson 196,510 (34,054) (87,744) (66,200) S S Net income $ (282,600) (66,200) 18,30 $ (330,500) Retained earnings, 1/1/18 Net income (771,200) (87,744) 47,7 Dividends declared S (811,244) Retained earnings, 12/31/18 Cash and receivables 276,200 259,400 423,463 S S 150,500 131,200 Inventory Investment in Stinson 205,000 88,800 23,200 Buildings (net) Equipment (net) Patents (net) 337,000 240,600 0 1,536,663 S 598,700 Total assets $ (168,200) (100,000) (330,500) Liabilities (425,419) (300,000) (811,244) Common stock Retained earnings, 12/31/18 $ (598,700) $(1,536,663) Total liabilities and equities a. Show how Mcl lroy determined the $423,463 Investment in Stinson account balance. Assume that Mcllroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018 Required A Required B Show how McIlroy determined the $423,463 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson's income. Consideration transferred Increase in Stinson's retained earnings 1/1/17 to 1/1/18 Excess fair value amortization 2017 ending inventory profit deferral Mcllroy's equity in earnings of Stinson for 2018 Stinson 2018 dividends declared to Mcllroy Investment account balance 12/31/18 > Required A Required B Required A Required B Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with minus sign.) a Show less MCILROY, INC., AND STINSON, INC. Consolidation Works heet For Year Ending December 31, 2018 Consolidation Entries Consolidated Mcllroy Accounts Stinson Debit Credit NCI Totals Sales (730,000) (366,000) $ Cost of goods sold Operating expenses Equity in earnings of Stinson 479,800 223,600 196,510 76,200 (34,054) (87,744) (66,200) Separate company net income Consolidated net income To noncontrolling interest To Mcllroy, Inc. Retained earnings, 1/1 (771,200) (282,600) Net income (87,744) (66,200) Dividends declared 47,700 18,300 (330,500) (811,244) S Retained earnings, 12/31 Cash and receivables Inventory Investment in Stinson $ 276,200 150,500 259,400 131,200 0 423,463 Buildings (net) 337,000 205,000 Equipment (net) 240,600 88,800 Patents (net) 23,200 Customer list Goodwill Total assets 1,536,663 598,700 $ S (168,200) Liabilities (425,419) Common stock (300,000) (100,000) Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 (811,244) (330,500) (1,536,663) Total liabilities and equities (598,700) Required B> Required A