Question

Protrade Corporation acquired 70 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $399,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's Identifiable assets and liabilities at a collective net fair value of $655,000 and the fair value of the 30 percent noncontrolling Interest was $171,000. 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: Sales Cost of goods sold Operating expenses Retained earnings, 1/1/18 Inventory Buildings (net) Investment income Protrade Seacraft $ 770,000 $ 490, 355, eee 262, eee 163,000 118,eee 870,000 310,000 359,00 123,00 371,00 170,000 Not given 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 $103,000 in 2017 and $123,000 in 2018. Of this Inventory, Seacraft retained and then sold $41,000 of the 2017 transfers in 2018 and held $55,000 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 $63,000 in 2017 and $93,000 in 2018. Of this Inventory, $34,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $48,000 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 $106,000, although its book value was only $63,000 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 is complete but not entirely correct. $ $ Cost of goods sold Inventory Net income attributable to noncontrolling interest Cost of goods sold Inventory Net income attributable to noncontrolling interest Buildings (net) Operating expenses Net income attributable to noncontrolling interest $ $ $ $ $ $ 680.875 438.125 X 33.000 660.875 438,125 X 31.425 506,800 X 272.400 33,000

Answer 1

Entry A Entry B Note: 1 Consolidated cost of goods sold $ $3,55,000 $2,62,000 $ Protrade's cost of goods sold Seacraft's cost of goods sold 3,55,000 2,62,000 $-1,23,000 Adjustment of 2018 intra-entity transfers 93,000 Recognized gross profit deferred in 2017 (2018 beginning inventory) cost of $41000= 41000/1.6- $25625 41000-25625= $ 15375 gross profit in intra transaction $ $ -15,375 -12,750 Deferral of 2018 intra-entity gross profit in ending inventory: cost of $55000= 55000/1.6= $34375 $55000-34375 $ 20625 gross profit $ $ 20,625 18,000 intra transaction 4,99,250 5,29,250 Intntory Protrade's 3,59,000 3,59,000 $ $ Seacraft's 1,23,000 1,23,000 $ Adjustment in closing -20,625 -18,000 4,64,000 4,61,375 Note 2 Building Account Protrade's 3,71,000 $ Seacraft's 1,70,000 Adjustment of 2017 intra-entity Building transfers Gross profit on sale 106000-63000 43000 Share of holding co. on profit 43000*.7 = Adjustment of 2017 depreciaiton on intra-entity Building transfers -30,100 Depreciation Charged- 106000/5= 21200 Actual depreciation would be= 63000/5=12600 8,600 Extra Depreciation Charged 21200-12600 $ 5,19,500 Journal Entry a Cost of goods sold Inventory Net Income attributable to nonconrolling interest 4,99,250 $ 4,61,375 33,000 b Cost of goods sold Inventory Net Income attributable to nonconrolling interest $ 5,29,250 $ 4,64,000 31,425 C Building (net) Operating Expenses Net Income attributable to nonconrolling interest 5,19,500 $ 2,72,400 33,000