Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $476,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $705,000 and the fair value of the 20 percent noncontrolling interest was $119,000. 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 $ 820,000 $540,000 380,000 287.000 168,000 123,000 920,000 360,000 364.000 129.000 376.000 175,000 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 $108,000 in 2017 and $128,000 in 2018. Of this inventory, Seacraft retained and then sold $46,000 of the 2017 transfers in 2018 and held $60,000 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 $68,000 in 2017 and $98,000 in 2018. Of this inventory. $39,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $53,000 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 $116,000, although its book value was only $68,000 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: a. b. 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

Answer 1

Answer:

a.	Cost of Goods Sold	544250
	Inventory	469500
	Net Income attributable to Non controlling Interest	26000
b.	Cost of Goods Sold	574250
	Inventory	472125
	Net Income attributable to Non controlling Interest	24950
c.	Building (net)	522200
	Operating Exp	281400
	Net Income attributable to Non controlling Interest	26000

(a) COGS:-

Portrade COGS	380000
Seacraft COGS	287000
Elimination of 2018 Intra equity Transfer	(128000)
Recognition gross profit deferred in 2017 (2018 beginning inventory) 46000 transfer price / 1.6 = 28750 cost 46000 – 28750 = 17250 intra equity gross profit	(17250)
Deferral of 2018 intra equity gross profit in ending inventory 60000 transfer price / 1.6 = 37500 cost 60000 – 37500 = 22500 intra equity gross profit	22500
	544250

Inventory :-

Portrade Inventory	364000
Seacraft Inventory	128000
Deferral of 2018 intra equity gross profit in ending inventory 60000 transfer price / 1.6 = 37500 cost 60000 – 37500 = 22500 intra equity gross profit	(22500)
	469500

Net Income Attributable to Non controlling Int :-

Seacraft sale	540000
Seacraft COGS	(287000)
Seacraft Operating Exp	(123000)
	130000
Net Income Attributable to Non controlling Int (130000 * 20%)	26000

(b) COGS:-

Portrade COGS	380000
Seacraft COGS	287000
Elimination of 2018 Intra equity Transfer	(98000)
Recognition gross profit deferred in 2017 (2018 beginning inventory) 39000 transfer price / 1.6 = 24375 cost 39000 – 24375 = 14625 intra equity gross profit	(14625)
Deferral of 2018 intra equity gross profit in ending inventory 53000 transfer price / 1.6 = 33125 cost 53000 – 33125 = 19875 intra equity gross profit	19875
	574250

Inventory :-

Portrade Inventory	364000
Seacraft Inventory	128000
Deferral of 2018 intra equity gross profit in ending inventory 53000 transfer price / 1.6 = 33125 cost 53000 – 33125 = 19875 intra equity gross profit	(19875)
	472125

Net Income Attributable to Non controlling Int :-

Seacraft sale	540000
Seacraft COGS	(287000)
Seacraft Operating Exp	(123000)
[(53000 – 39000)/1.6] * 0.6	(5250)
	124750
Net Income Attributable to Non controlling Int (124750 * 20%)	24950

(c) Building :-

Portrade Building	376000
Seacraft Building	175000
(+) Depreciation on gain (116000 – 68000)/5	9600
(-) [116000 – 68000] - 9600	38400
	522200

Operating Exp :-

Portrade Operating Exp	168000
Seacraft Operating Exp	123000
(-) Depreciation on gain	9600
	281400

Net Income Attributable to Non controlling Int :-

Seacraft sale	540000
Seacraft COGS	(287000)
Seacraft Operating Exp	(123000)
	130000
Net Income Attributable to Non controlling Int (130000* 20%)	26000