Problem 5-32 (Algo) (LO 5-2, 5-3, 5-4, 5-5)

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $365,400. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $216,100. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $243,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $75,100 and an unrecorded customer list (15-year remaining life) assessed at a $50,700 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy 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:

Year	Cost to McIlroy	Transfer Price to Stinson	Ending Balance (at transfer price)
2020	$124,500	$155,625	$51,875
2021	113,100	150,800	37,700

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

	McIlroy, Inc.				Stinson, Inc.
Sales	$	(717,000	)		$	(356,000	)
Cost of goods sold		471,200				217,600
Operating expenses		193,440				74,200
Equity in earnings in Stinson		(32,936	)			0
Net income	$	(85,296	)		$	(64,200	)
Retained earnings, 1/1/21	$	(753,900	)		$	(281,400	)
Net income		(85,296	)			(64,200	)
Dividends declared		46,700				16,900
Retained earnings, 12/31/21	$	(792,496	)		$	(328,700	)
Cash and receivables	$	269,800			$	149,700
Inventory		253,400				130,500
Investment in Stinson		410,467				0
Buildings (net)		328,000				203,800
Equipment (net)		234,200				87,400
Patents (net)		0				22,000
Total assets	$	1,495,867			$	593,400
Liabilities	$	(403,371	)		$	(164,700	)
Common stock		(300,000	)			(100,000	)
Retained earnings, 12/31/21		(792,496	)			(328,700	)
Total liabilities and equities	$	(1,495,867	)		$	(593,400	)

(Note: Parentheses indicate a credit balance.)

1. Show how McIlroy determined the $410,467 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinsons income.

2. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.