Question

 Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $567,000 in cash. The subsidiary's stockholders' equity accounts totaled $551,000 and the noncontrolling interest had a fair value of $63,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $38,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).

 Brey reported net income from its own operations of $89,000 in 2016 and $105,000 in 2017. Brey declared dividends of $31,500 in 2016 and $35,500 in 2017.

 At December 31, 2018, Pitino owes Brey $41,000 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.

 a. What was the annual amortization resulting from the acquisition-date fair-value allocations?

 b. Were the intra-entity transfers upstream or downstream?

 c. What intra-entity gross profit in inventory existed as of January 1, 2018?

 d. What intra-entity gross profit in inventory existed as of December 31, 2018?

 e. What amounts make up the $125,010 Equity Earnings of Brey account balance for 2018?

 f. What is the net income attributable to the noncontrolling interest for 2018?

 g. What amounts make up the $704,700 Investment in Brey account balance as of December 31, 2018?

 h. Prepare the 2018 worksheet entry to eliminate the subsidiary's beginning owners' equity balances.

 i. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Answer 1

As HOMEWORKLIB guideline 4 sub parts done.

Answer 2

	Ans)	Consideration transferred	$                    5,67,000.00
		Non controlling interest at fair value	$                       63,000.00
		Fair value at the date of acquisition by subsidiary	$                    6,30,000.00
		Less:Book Value	$                    5,51,000.00
		Excess o fair value over book value	$                       79,000.00
		Excess of fair value over book value assigned to
			(A)	(B)	(A)/(B)
			Amount	Life	Annual Excess amortization
	a)	Building	$                       38,000.00	10	$           3,800.00
		Patent	$                       41,000.00	5	$           8,200.00
					$         12,000.00
	b)	When subsidiary sold inventory to Parent company , the transfer are upstream.
		In this case Brey sold inventory to Pitino Company, the transfer are upstream.
	c )	In 1st,Jan 2018
		Transfer Price to Pitino	$                    2,60,000.00
		Cost to Brey	$                    1,43,000.00
		Gross Profit=($263000-$143000)	$                    1,17,000.00
		Gross Profit %=($117000/$260000)	45%
		Remaining Inventory in 2017	$                       62,000.00
		Unrealized gross profit=($62000*45%)	$                       27,900.00
	d)	In 31st Dec,2018
		Transfer Price to Pitino	$                    2,85,000.00
		Cost to Brey	$                    1,71,000.00
		Gross Profit=($285000-$171000)	$                    1,14,000.00
		Gross Profit %=($114000/$285000)	40%
		Remaining Inventory in 2018	$                       65,000.00
		Unrealized gross profit=($65000*40%)	$                       26,000.00
	e)	Brey's reported net income	$                    1,49,000.00
		Less: Fair value amortization	$                      -12,000.00
		Realized gross profit	$                       27,900.00
		Less:Deferred gross profit	$                      -26,000.00
		Adjusted net income of Brey's	$                    1,38,900.00
		Pitino's share in Brey's income=($138900*90%)	$                    1,25,010.00
	f)	Adjusted net income of Brey's	$                    1,38,900.00
		Non controlling interest in Brey's income=($138900*10%)	$                       13,890.00
	g)	Investment in Brey's account balance December 31st,2018
		Consideration transferred		$                     5,67,000.00
		Net Income
		2016	$                       89,000.00
		2017	$                    1,05,000.00
		2018	$                    1,49,000.00
		Total	$                    3,43,000.00
		Less: Unrealized gross profit	$                       26,000.00
		Realized Income of 2018	$                    3,17,000.00
		Pitino's share=($317000*90%)		$                     2,85,300.00
		Excess amortization for three years=($12000*3*90%)		$                       -32,400.00
		Dividend Paid by Brey's
		2016	$                       31,500.00
		2017	$                       35,500.00
		2018	$                       61,000.00
		Total dividend	$                    1,28,000.00
		Pitino's share in dividend=($128000*90%)		$                   -1,15,200.00
		Investment in Brey's account balance December 31st,2018		$                     7,04,700.00
	h)	Worksheet Entry
		Entry S
		Common Stock 1/1/2018	$                    3,50,000.00
		Retained Earnings 1/1/2018=($328000-$27900)	$                    3,00,100.00
		To Investment in Brey's=($350000+$300100)*90%		$                     5,85,090.00
		To Non controlling Interest=($350000+$300100)*10%		$                        65,010.00

Answer 3