Pitino acquired 90 percent of Brey\'s outstanding shares on January 1, 2013, in
ID: 2553538 • Letter: P
Question
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2013, in exchange for $567,000 tin cash. The subsidiary's stockholders' equity accounts totaled $551,000 and the noncontrolling interest had a fair value of $63,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $38,000. 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 $89,000 in 2013 and $105,000 in 2014. Brey declared dividends of $31,500 in 2013 and $35,500 in 2014. Brey sells inventory to Pitino as follows: Year 2013 2014 2015 Transfer Price to Pitino $240,000 260,000 285,000 Inventory Remaining at Year-End (at transfer price) $50,000 62,000 65,000 Cost to Brey $94,000 143,000 At December 31, 2015, Pitino owes Brey $41,000 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 Cost of goods sold Expenses Equity in earnings of Brey s (912,000) $(491,000) 540,000 187,900 (125,010) 234,000 108,000 Net income $ (309,110) $(149,000) Retained earnings, 1/1/15 Net income (above) Dividends declared $ (538,000) (328,000) (309,110) (149,000) 61,000 154,000 Retained eamings, 12/31/15s (693,110) S(416,000) $171,000 S 123,000 380,000310,000 Cash and receivables Inventory Investment in Brey Land, buildings, and equipment (net) 704,700 989,000 353,000 $2.244,700 S 786,000 $ (911,590) S (20,000) (693,110) (416,000) $(2.244,700) $(786,000) Total assets Liabilities Common stock Retained earnings, 12/31/15 Total liabilities and equityExplanation / Answer
As per Chegg Policy I am answering the first four subparts.
a.
Amortization:
Annual amortization = 12000
b) Brey sells inventory to Pitino, the transfers are upstream.
c) Gross Profit for 2014 = 260,000 - 143,000
= 117,000
% of Gross Profit = 117,000 / 260,000 = 45%
Unrealized gross profit = 62000 *45 % = 27900
d ) Gross Profit for 2015 = 285,000 - 171,000
= 114,000
% of Gross Profit = 114,000 / 285,000 = 40%
Unrealized gross profit = 65000 *40 % = 26000
e)
f ) Net income attributable to non controlling interest = 138900 * 10% = 13890
Acquisition Cost 567000 Fair Value of Non Controlling Interest 63000 Less: Book Value 551000 Fair Value in excess of Book Value 79000 Excess assgined to Building 38000 Assigned to Patent[79000-38000] 41000