Question

ProForm acquired 80 percent or ClipRite on June 30, 2017, for $1,280,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $800,000 was recognized and lis being amortized at the rate of $14,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $320,000 at the acquisition date. The 2018 financial statements are as Tollows: ProForm clipRite Sales (980,000) 625,000 280,000 (960,000) 490,000 190,000 operating expenses Dividend income 80,000 Net income Retained earnings Net income 155,000) (280,000) $(2,500,000) 1,030,000) (280,000) $(2,375,000) 1,210,000) 155,000) 280,000 Dividends declared 100,000 Retained earnings, 12/31/18 Cash and receivables 580,000 480,000 Inventory Investment in ClipRite Fixed assets Accumulated depreciation 470,000 ,280,000 1,500,000 890,000 1,500,000 (400,000) (450,000) $ 3,430,000 2,410,000 Totals Liabilities Common stock Retained earnings 12/31/18 (555,000) (500,000) (700,000) (500,000) (2,375,000) (1,210,000) $3,430,000) (2,410,000) Totals ProForm sold ClipRite inventory costing $87000 during the last six months of 2017 for $270,000. At year-end, 30 percent remained. ProForm sells CipRite inventory costing $290,000 during 2018 for $430,000. At year-end, 10 percent is left. Determine the consolidated balances for the following accounts: Sales Cost of goods sold 0 Dividend income Net income attributable to noncontrolling interest Inven 1.510.000 644,100 484,000 interest in subsidiary, 12/3118

Answer 1

Intra-Entity gross profit, 12/31/17: (upstream transfer)

Intra-entity gross profit ($270,000 – $87,000)	183000
Inventory remaining at year's end	20%
Intra-entity gross profit in inventory, 12/31/17	36600

Intra-Entity gross profit, 12/31/18: (upstream transfer)

Intra-entity gross profit ($430,000 – $290,000)	140000
Inventory remaining at year's end	10%
Intra-entity gross profit in inventory, 12/31/18	14000

Sales = Proform's Sales + ClipRite's Sales - Intra-entity transfer = $980,000 + $960,000 - $430,000 = $1,510,000

Cost of goods sold = $662400

Proform's COGS book value	625000
ClipRite's COGS book value	490000
Eliminate intra-entity transfers	(430000)
Recognized gross profit deferred in 2017	(36600)
Deferral of 2018 Intra-entity gross profit in inventory	14000
Consolidated cost of goods sold	662400

Operating expenses = Proform's Operating Expenses + ClipRite's Operating Expenses + Intangible Amortization = 280,000+190,000+14,000 = $484,000

Dividend income = 0 (intra-entity transfer eliminated in consolidation)

Net income attributable to noncontrolling interest:

ClipRite reported net income for 2018	280000
Intangible amortization	(14000)
2017 gross profit recognized in 2018	36600
2018 gross profit deferred	(14000)
ClipRite adjusted net income for 2018	288600
Outside ownership	20%
Net income attributable to noncontrolling interest	57720

Inventory = Proform's Inventory + ClipRite's Inventory - Ending intra-entity gross profit = 470000 +880000 -14000 = $1336000

Noncontrolling interest in subsidiary, 12/31/18

20% beginning book value less $36600 intra-entity gross profit ((2410000-280000)-36600)*20%)	418680
Excess intangible allocation (20% × (800000-14000))	157200
Net income attributable to noncontrolling interest	57720
Dividends (20% × $100,000)	(20000)
Total noncontrolling interest at 12/31/18	613600

Therefore,

Sales	$1,510,000
Cost of goods sold	$662400
Operating expenses	$484,000
Dividend income	$0
Net income attributable to noncontrolling interest	$57720
Inventory	$1336000
Noncontrolling interest at 12/31/18	$613600