Question

On January 1, 2017, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $392,400. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $81,700 and an unrecorded customer list (15-year remaining life) assessed at a $57,000 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: Year 2017 2018 Cost to Mcllroy $130,800 113,400 Transfer Price to Stinson $163,500 151,200 Ending Balance (at transfer price) $54,500 37,800 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow:

Answer 1

392,400 261,600 654,000 Acquisition Date Fair Value allocation and excess amortization Consideration Transferred Fair Value of Non Controlling Interest (NCI) Total Fair Value of Stinson Less: Book Value of Stinson Common Stock 100,000 Retained Earnings 231,900 Total Book Value of Stinson Fair Value in Excess of Book Value Excess Value Assigned to Specific Accounts (331,900) 322,100 Value (60%) Annual Excess Amortization 8,170 3,800 Share of Controlling Interest in Amortization Share of NCI in Amortization (40%) 4,902 3,268 2,280 1,520 Life in Year 81,700 57,000 183,400 Indefinite 10 Patents Customer List Goodwill (Balance) (322,100 -81,700-57,000) Annual Excess Value 15 11,970 7,182 4,788 Excess Value as on 01/01/18 01/01/17 Amortization Patents 81,700 8,170 Customer List 57,000 3,800 Goodwill 183,400 Total 322,100 11,970 Value as on 01/01/18 = (Value as on 01/01/17 - Amortization) Share of Controlling Interest in Amortization Share of NCI in 01/01/18 (60%) Amortization (40%) 73,530 44,118 29,412 53,200 31,920 21,280 183,400 110,040 73,360 310,130 186,078 124,052

Calculation of Deferred profit on intra entity inventory sales Gross Profit as a percentage of Sale (D = (C/A) x 100] Transfer price Year [A] 2017 163,500 2018 151,200 Cost Price [B] 130,800 113,400 Gross Profit [C = (A-B)] 32,700 37,800 Ending Balance [EJ 54,500 37,800 Deferred Profit at year end ( DE) 10,900 9,450 20% 25% Calculation of Investment Balance 392,400 Consideration Transferred Increase in stinson's retained earning 1/1/17 to 1/1/18 Excess Fair Value amortization 2017 Ending Inventory deferral Mcllroy equity in earnings of Stinson for 2018 Stinson 2018 Dividends Declared to Mcllroy Investment in Stinson Balance on 12/31/2018 31,140 (7,182) (10,900) 13,058 35,308 (11,760) 429,006 Working Increase in Stinson's Retained Earnings Retained Earnings as on 01/01/18 Less: Retained Earnings as on 01/01/17 Increase in Stinson's Retained Earnings Share of Mcllroy (51,900 x 60%) 283,800 231,900 51,900 31,140 Share of Mcllroy in Stinson's Dividend Dividend Declared by Stinson's in 2018 Dividend declared to Mcllroy (19,600 x 60%) Dividend declared to NCI (19,600 x 40%) 19,600 11,760 7,840

Non Controlling Interest MCLLROY, INC AND STINSON INC. Consolidation Worksheet Year Ending December 31, 2018 Adjustment Entries Mcllroy, Inc Stinson, Inc Debit Credit (741,000) (377,000) [TI] 151,200 487,000 230,200 [61] 9,450 162,100 199,020 78,400 [E] 11,970 (35,308) 35,308 (90,288) (68,400) Consolidated Total (966,800) 564,550 289,390 (W.N] Sales Cost of goods sold Operating Expense Equity in Earnings in Stinson Net Income Consolidated Net Income To Non Controlling Interest To Mcllroy, Inc. [0 (22,572) (112,860) 22,572 (90,288) 283,800 Retained Earnings, 1/1 Net Income Dividend Declared Retained Earnings, 12/31 (792,000) (90,288) 49,100 (833,188) (283,800) [S] (68,400) 19,600 (332,600) (792,000) (90,288) 49,100 (833,188) 11,760 (D) 7,840 435,000 388,950 283,600 266,400 429,006 347,000 247,700 9,450 [61] 451,666 [W.N] [W.N] Cash and Receivable Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total Assets 22,660 151,400 132,000 - 206,500 90,100 24,800 - [A] [A] [A] 73,530 53,200 183,400 8,170 3,800 [E] [E] 553,500 337,800 90,160 49,400 183,400 2,038,210 1,573,706 604,800

(172,200) (440,518) (300,000) 00) [s] (612,718) (300,000) 100,000 277,572 (W.N] Liabilities Common Stock Non Controlling Interest 1/1 Non Controlling Interest 12/31 Retained Earnings 12/31 Total Liabilities and Equity (277,572) (292,304) (332,600) (833,188) (1,573,706) (292,304) (833,188) (2,038,210) (604,800) 924,518 924,518 Entries Explanantion: [TI] is to eliminate the current year intra entity inventory transfer [G] is to eliminate the 2018 deferred inventory profit (G1) is to eliminate the 2017 deferred inventory profit [1] is to eliminate the equity earnings (S] is to eliminate the subsidiary stockholders' equity balance and 40% assign to Non controlling interest [A] is to record the unamortized excess value of assets as on 01/01/18 [E] is to record the amortization expense on excess value [D] is to eliminate the intercompany dividend in 60% and 40 % between parent and NCI (19,600 x 60%), (19,600 x 40%) respectively. Calculation of NCI in Net Income of Stinson's Net Income 68,400 less: Excess Amortization (11,970) Adjusted Net Income 56,430 NCI Share in Net Income (56,430 x 40%) 22,572

Total Adjustment After Combining Multiple Debits and Credit Cost of goods sold Credit Intercompany Sales Entry [TI] 151,200 Beginning Deferred Profit [G] 10,900 Total Adjustment 162,100 Investment in Stinson Debit Credit 35,308 10,900 11,760 Entry 1 (Incnome from Stinson) Entry [G] Beginning Deferred Profit Enty [D] [Intercompany Dividend] Entry s Common stock (100,000 X 60%) Retained Earnings (283,800 x 60%) Entry A (Share in Excess Value) 60,000 170,280 186,078 451,666 Total 22,660 Noncontrolling Interest 1/1 Credit Entrys Common stock (100,000 x 40%) Retained Earnings (283,800 x 40%) Entry A (Share in Excess Value) Total 40,000 113,520 124,052 277,572