Pitino acquired 90 percent of Brey\'s outstanding shares on January 1, 2016, in
ID: 341816 • Letter: P
Question
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $342,000 in cash. The subsidiary's stockholders' equity accounts totaled $326,000 and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (six-year remaining life).
Brey reported net income from its own operations of $64,000 in 2016 and $80,000 in 2017. Brey declared dividends of $19,000 in 2016 and $23,000 in 2017.
Brey sells inventory to Pitino as follows:
At December 31, 2018, Pitino owes Brey $16,000 for inventory acquired during the period.
The following separate account balances are for these two companies for December 31, 2018, and the year then ended.
Note: Parentheses indicate a credit balance.
What was the annual amortization resulting from the acquisition-date fair-value allocations?
Were the intra-entity transfers upstream or downstream?
What intra-entity gross profit in inventory existed as of January 1, 2018?
What intra-entity gross profit in inventory existed as of December 31, 2018?
What amounts make up the $68,400 equity earnings of Brey account balance for 2018?
What is the net income attributable to the noncontrolling interest for 2018?
What amounts make up the $450,000 Investment in Brey account balance as of December 31, 2018?
Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.
Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.
Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2016 $ 69,000 $ 115,000 $ 25,000 2017 81,000 135,000 37,500 2018 92,800 160,000 50,000Explanation / Answer
(25000*GP raito 40%)
Amount in $ Fair value of non controlling interest (10%) 38,000.00 Fair value of controlling interest 90% 342,000.00 (38000/10 *90) Less : undervalued building 18,000.00 Fair value of aqusition 324,000.00 Cash paid 342,000.00 Excess amount paid over fair value 18,000.00 (342000-324000) Answer to Q1 Annual amortisation for patent of $18000 3,000.00 (18000/6 over life of patent) Answer to Q2 As stock is transfer to pinto from brey it is upstrem transfers year transfer price cost Gross profit Gross profit % 2016 115000 69000 46000 40% (46000/115000*100) 2017 135000 81000 54000 40% (54000/135000*100) 2018 160000 92800 67200 42% (67200/160000*100) year stock at year end gross profit in stocks year stock at year end gross profit in stocks 2016 25000 10000(25000*GP raito 40%)
2018 50000 21000 (50000*GP raito 42%) 2017 37500 15000 (37500* GP raito 40%) 25000 answer of Q3 Answer q3 25000 (10000+15000) Answer to Q4 46000 profit existed as on 31st december 2018 Amount in $ Fair value of non controlling interest (10%) 38,000.00 Fair value of controlling interest 90% 342,000.00 (38000/10 *90) Less : undervalued building 18,000.00 Fair value of aqusition 324,000.00 Cash paid 342,000.00 Excess amount paid over fair value 18,000.00 (342000-324000) Answer to Q1 Annual amortisation for patent of $18000 3,000.00 (18000/6 over life of patent) Answer to Q2 As stock is transfer to pinto from brey it is upstrem transfers year transfer price cost Gross profit Gross profit % 2016 115000 69000 46000 40% (46000/115000*100) 2017 135000 81000 54000 40% (54000/135000*100) 2018 160000 92800 67200 42% (67200/160000*100) year stock at year end gross profit in stocks year stock at year end gross profit in stocks 2016 25000 10000 (25000*GP raito 40%) 2018 50000 21000 (50000*GP raito 42%) 2017 37500 15000 37500* GP raito 40% 25000 answer of Q3 Answer q3 25000 (10000+15000) Answer to Q4 46000 profit existed as on 31st december 2018