Question

On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $313,800. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $185,500. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $209,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $76,300 and an unrecorded customer list (15-year remaining life) assessed at a $52,200 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy 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	Cost to McIlroy	Transfer Price to Stinson	Ending Balance (at transfer price)
2017	$126,000	$157,500	$52,500
2018	112,800	150,400	37,600

The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow:

	McIlroy, Inc.				Stinson, Inc.
Sales	$	(723,000)			$	(358,000)
Cost of goods sold		475,200				218,800
Operating expenses		195,410				74,600
Equity in earnings in Stinson		(33,194)				0
Net income	$	(85,584)			$	(64,600)
Retained earnings, 1/1/18	$	(768,000)			$	(282,000)
Net income		(85,584)				(64,600)
Dividends declared		47,400				17,600
Retained earnings, 12/31/18	$	(806,184)			$	(329,000)
Cash and receivables	$	275,000			$	149,800
Inventory		258,300				130,600
Investment in Stinson		377,168				0
Buildings (net)		333,000				204,300
Equipment (net)		237,800				88,000
Patents (net)		0				22,400
Total assets	$	1,481,268			$	595,100
Liabilities	$	(375,084)			$	(166,100)
Common stock		(300,000)				(100,000)
Retained earnings, 12/31/18		(806,184)				(329,000)
Total liabilities and equities	$	(1,481,268)			$	(595,100)

1. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.

PLEASE HELP!!

Answer 1

313,800 209,200 523,000 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 185,500 Total Book Value of Stinson Fair Value in Excess of Book Value Excess Value Assigned to Specific Accounts (285,500) 237,500 Value Life in Year Annual Excess Amortization 7,630 Share of Controlling Interest in Amortization Share of NCI in (60%) Amortization (40%) 4,578 3,052 2,088 1,392 76,300 52,200 109,000 10 15 Patents Customer List Goodwill (Balance) (237,500 -76,300-52,200) Annual Excess Value 3,480 Indefinite 11,110 6,666 4,444 Excess Value as on 01/01/18 01/01/17 Amortization Patents 76,300 7,630 Customer List 52,200 3,480 Goodwill 109,000 Total 237,500 11.110 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%) 68,670 41,202 27,468 48,720 29,232 19,488 109,000 65,400 43,600 226,390 135,834 90,556

Calculation of Deferred profit on intra entity inventory sales Gross Profit as a percentage of Sale (D = (C/A)100] Transfer price Year [A] 2017 1 57,500 2018 150,400 Cost Price [B] 126,000 112,800 Gross Profit [C = (A-B)] 31,500 37,600 Ending Balance [E] 52,500 37,600 Deferred Profit at year end ( DE) 10,500 9,400 20% 25%

Non Controlling Interest MCLLROY, INC AND STINSON INC. Consolidation Worksheet Year Ending December 31, 2018 Adjustment Entries Mcllroy, Inc Stinson, Inc Debit Credit (723,000) (358,000) [TI] 150,400 475,200 218,800 [61] 9,400 160,900 195,410 74,600 [E] 11,110 (33,194) 33,194 (85,584) (64,600) Consolidated Total (930,600) 542,500 281,120 (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. (21,396) (106,980) 21,396 (85,584) 282,000 Retained Earnings, 1/1 Net Income Dividend Declared Retained Earnings, 12/31 (768,000) (85,584) 47,400 (806,184) (282,000) [S] (64,600) 17,600 (329,000) 10,560 [D] 7,040 (768,000) (85,584) 47,400 (806,184) 424,800 379,500 275,000 258,300 377,168 333,000 237,800 9,400 (G1] 398,228 (W.N] [W.N] Cash and Receivable Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) Customer list Goodwill Total Assets 21,060 149,800 130,600 - 204,300 88,000 22,400 [A] [A] 68,670 48,720 109,000 7,630 3,480 [E] [E] 537,300 325,800 83,440 45,240 109,000 ΓΑ] 1,481,268 595,100 1,905,080

(375, 084) (300,000) (166,100) (100,000) [S] (541,184) (300,000) 100,000 243,356 [W.N] Liabilities Common Stock Non Controlling Interest 1/1 Non Controlling Interest 12/31 Retained Earnings 12/31 Total Liabilities and Equity (243,356) (257,712) (806,184) (1,481,268) (329,000) (595,100) (257,712) (806,184) (1,905,080) 833,554 833,554 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 (17,600 x 60%), (17,600 x 40%) respectively. Calculation of NCI in Net Income of Stinson's Net Income less: Excess Amortization Adjusted Net Income NCI Share in Net Income (53,490 x 40%) 64,600 (11,110) 53,490 21,396

Total Adjustment After Combining Multiple Debits and Credit Cost of goods sold Credit Intercompany Sales Entry (TI] 150,400 Beginning Deferred Profit [G] 10,500 Total Adjustment 160,900 Investment in Stinson Debit Credit 33,194 10,500 10,560 Entry 1 (Incnome from Stinson) Entry [G] Beginning Deferred Profit Enty (D) [Intercompany Dividend] Entry s Common stock (100,000 X 60%) Retained Earnings (282,000 x 60%) Entry A (Share in Excess Value) Total 60,000 169,200 135,834 21,060 398,228 Noncontrolling Interest 1/1 Credit Entry Common stock (100,000 x 40%) Retained Earnings (282,000 x 40%) Entry A (Share in Excess Value) Total 40,000 112,800 90,556 243,356