Question

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $423,000 in cash. The subsidiary's stockholders' equity accounts totaled $407,000 and the noncontrolling interest had a fair value of $47,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $31,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life). Brey reported net income from its own operations of $73,000 in 2016 and $89,000 in 2017. Brey declared dividends of $23,500 in 2016 and $27,500 in 2017. Year 2016 2017 2018 Inventory Remaining at Transfer Price Year-End (at Cost to Brey to Pitino transfer price) $ 78,000 $ 160,000 $ 34,000 90,000 180,000 46,500 123,000 205,000 40,000 At December 31, 2018, Pitino owes Brey $25,000 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.

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

Answer 1

Part I

Sales	1496000	(880000+411000+205000)
Cost of goods sold	529750	(524000+218000-205000-23250+16000)
Expenses	273400	(186300+76000+11100)
Equity in earnings of Brey	$0
Noncontrolling interest in consolidated net income	11315
Consolidated net income to parent	692850
Retained earnings 1/1	506000
Dividend declared	138000
Retained earnings 12/31	639535
Cash and receivables	237000	(155000+107000-25000)
Inventory	465000	(300000+181000-16000)
Investment in Brey	0
Land, buildings and equipment	1331700	(973000+337000+(31000-(3100*3))
Patented technology	32000
Total assets	$2065700
Liabilities	780095	(787095+18000-25000)
Noncontrolling interest in Brey, 12/31	86070
Common stock	560000
Retained earnings 12/31	639535
Total liabilities and stockholders’ equity	$2065700

Consideration transferred	423000
Noncontrolling interest fair value	47000
Subsidiary fair value at acquisition-date	470000
Book value	(407000)
Fair value in excess of book value	63000
Excess fair value assignments		Life	Annual Excess Amortizations
To Building	31000	10 yrs	3100
To Patented technology	32000	4 yrs	8000
Totals			11100

Gross profit on 2017 transfers ($180000-90000)	90000
Gross profit percentage (90000/180000)	50%
Inventory remaining, 12/31/17	46500
Gross profit percentage	50%
Unrealized gross profit, January 1, 2018	23250

Gross profit on 2018 transfers ($205000-123000)	82000
Gross profit percentage (82000/205000)	40%
Inventory remaining, 12/31/18	40000
Gross profit percentage	40%
Unrealized gross profit, December 31, 2018	16000

Brey’s reported net income	117000
Excess fair value amortization	(11100)
Realized gross profit	23250
Deferred gross profit	(16000)
Adjusted subsidiary income	113150
Ownership	90%
Investment income—Brey	$101835

Brey’s adjusted income	113150
Outside ownership	10%
Noncontrolling interest in subsidiary's net income	11315