Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $612,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $765,000 and the fair value of the 20 percent noncontrolling interest was $153,000. No excess fair value over book value amortization accompanied the acquisition.

The following selected account balances are from the individual financial records of these two companies as of December 31, 2018:

Each of the following problems is an independent situation:

a) Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $114,000 in 2017 and $134,000 in 2018. Of this inventory, Seacraft retained and then sold $52,000 of the 2017 transfers in 2018 and held $66,000 of the 2018 transfers until 2019.
Determine balances for the following items that would appear on consolidated financial statements for 2018:

b) Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $74,000 in 2017 and $104,000 in 2018. Of this inventory, $45,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $59,000 of the 2018 transfers were held until 2019.
Determine balances for the following items that would appear on consolidated financial statements for 2018:

c) Protrade sells Seacraft a building on January 1, 2017, for $128,000, although its book value was only $74,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value.
Determine balances for the following items that would appear on consolidated financial statements for 2018:

Answer 1

a.	Cost of Goods Sold	$                 657,250
	Inventory	$                 489,250
	Net Income Attributable to Noncontrolling Interest	$                   44,750

Working Notes :

i.	Sales During 2018	$                 134,000
	Mark Up	60%
ii.	Cost of Goods sold for 2018 (iii/1.6)	$                   83,750
iii.	Transfers held of 2017	$                   52,000
	Mark Up	60%
iv	Cost of Goods sold held of 2017 (iii/1.6)	$                   32,500
v	Net Decrease in Cost of Goods Sold [ (i-ii)+(iii-iv) ]	$                   69,750
	Cost of Goods Sold ( As reported)	$                 727,000
	Adjusted Cost of Goods Sold	$                 657,250
	Net Income Attributable to Noncontrolling Interest	$                   30,800
	Net Decrease in Cost of Goods Sold	$                   69,750
	Non Controlling Stake	20%
	Increase in Net Income Attributable to Noncontrolling Interest	$                   13,950
	Adjusted Net Income Attributable to Noncontrolling Interest	$                   44,750

b.	Cost of Goods Sold	$ 6,28,250
	Inventory	$                 491,875
	Net Income Attributable to Noncontrolling Interest	$                   41,795

Working Notes :

i.	Sales During 2018	$                 104,000
	Mark Up	60%
ii.	Cost of Goods sold for 2018 (iii/1.6)	$                   65,000
iii.	Transfers held of 2017	$                   45,000
	Mark Up	60%
iv	Cost of Goods sold held of 2017 (iii/1.6)	$                   28,125
v	Net Decrease in Cost of Goods Sold [ (i-ii)+(iii-iv) ]	$                   55,875
	Cost of Goods Sold ( As reported)	$                 727,000
	Adjusted Cost of Goods Sold	$                 671,125
	Net Income Attributable to Noncontrolling Interest	$                   30,800
	Net Decrease in Cost of Goods Sold	$                   55,875
	Non Controlling Stake	20%
	Increase in Net Income Attributable to Noncontrolling Interest	$                   11,175
	Adjusted Net Income Attributable to Noncontrolling Interest	$                   41,975
	Inventory
i	Protrade	$                 370,000
ii.	Seacraft	$                 144,000
iii.	Transfers held until 2019	$                   59,000
	Mark Up	60%
iv.	Adjusted Cost of Transfers Held (iii/1.6)	$                   36,875
v	Adjusted Inventory [ (i+ii)-iv ]	$                 491,875

c.  

Buildings	$                 552,200
Operating Expenses	$                 292,200
Net Income Attributable to Noncontrolling Interest	$                   30,800