Accountancy
January 1, 2019, Strolle Company acquired an 70% interest in Hailey Company for a purchase price that was $500,000 over the book value of Hailey’s Stockholders’ Equity on the acquisition date. Spring uses the equity method to account for its investment in Hailey. Strolle assigned the acquisition-date AAP as follows:
AAP Items Initial Fair Value Useful Life (years)
Patent 350,000 10
Goodwill 150,000 Indefinite
$500,000
Hailey sells inventory to Strolle (upstream) which includes that inventory in products that it (Strolle), ultimately, sells to customers outside of the controlled group. You have compiled the following data as of 2024 and 2025:
2024 2025
Transfer price for inventory
sale $305,500 $500,000
Cost of goods sold -259,675 -440,000
Gross profit $45,825 60,000
% inventory remaining 50% 40%
Gross profit deferred $22,913 $24,000
EOY Receivable/Payable $42,000 $18,000
The inventory not remaining at the end of the year has been sold outside of the controlled group.
Strolle and Hailey report the following financial statements at December 31, 2025:
Income Statement
Strolle Hailey
Sales $4,500,000 $750,000
Cost of goods sold -3,825,000 (660,000)
Gross Profit 675,000 90,000
Income (loss) from subsidiary 13,939
Operating expenses -323,000 -34,000
Net income $365,939 $56,000
Statement of Retained Earnings
Strolle Hailey
BOY Retained Earnings $4,465,000 $440,000
Net income 365,939 56,000
Dividends -105,400 -10,000
EOY Retained Earnings $4,725,539 $486,000
Balance Sheet
Strolle Hailey
Assets:
Cash $420,000 $425,000
Accounts receivable 304,000 545,000
Inventory 654,000 425,000
Equity Investment 782,600
PPE, net 6,723,539 420,000
$8,884,139 $1,815,000
Liabilities and Stockholders’ Equity:
Current Liabilities $340,000 $175,000
Long-term Liabilities 1,750,000 753,000
Common Stock 853,600 92,100
APIC 1,215,000 308,900
Retained Earnings 4,725,539 486,000
$8,884,139 $1,815,000
Required:
a. Compute the EOY noncontrolling interest equity balance.
b. Prepare the consolidation spreadsheet as of December 31, 2025:
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