Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $472,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $695,000 and the fair value of the 20 percent noncontrolling interest was $118,000. 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:

	Protrade			Seacraft
Sales	$	810,000		$	530,000
Cost of goods sold		375,000			282,000
Operating expenses		167,000			122,000
Retained earnings, 1/1/18		910,000			350,000
Inventory		363,000			127,000
Buildings (net)		375,000			174,000
Investment income	Not given			0

Each of the following problems is an independent situation:

• Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $107,000 in 2017 and $127,000 in 2018. Of this inventory, Seacraft retained and then sold $45,000 of the 2017 transfers in 2018 and held $59,000 of the 2018 transfers until 2019.
  Determine balances for the following items that would appear on consolidated financial statements for 2018:
• Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $67,000 in 2017 and $97,000 in 2018. Of this inventory, $38,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $52,000 of the 2018 transfers were held until 2019.
  Determine balances for the following items that would appear on consolidated financial statements for 2018:
• Protrade sells Seacraft a building on January 1, 2017, for $114,000, although its book value was only $67,000 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 1

A. Protrade sold Inventory to seacrat Calculation of Gross Profit on intra entity transfer $ Descriptions A. Intra entity transfer B. Cost Price (A/(100+60)%) C. Gross Profit (A-B) D. Gross Profit on Transfer price (C/A) x 100 E. Stock retained F. Gross Profit Inculded in Stock retained (ExD) 2017 107,000 66,875 40,125 37.50% 45,000 16,875 $ 2018 127,000 79,375 47,625 37.50% 59,000 22,125 $ 375,000 282,000 657.000 Calculation of Net consoldiated Cost of Goods sold Protrade Cost of goods sold Seacrat Cost of goods sold Unadjusted Consolidated cost of goods sold Less: Intra entity transfer of 2018 Less: Unrealized Prior year profit in 2017 Add: Unrealized current year profit in 2018 Net Consolidated Cost of goods sold -127,000 - 16,875 22,125 535,250 Calculation of Net Consolidated Inventory Protrade Inventory Seacrat Inventory Unadjusted Consolidated Inventory Less: Unrealized current year profit in 2018 Net Consolidated Inventory 363,000 127,000 490,000 -22,125 467,875

Net Income Attributable to NCI Net Income of Seacraft Sales Less: Cost of goods sold Less: Operating Expense Net Income of Seacraft Share of Non Controlling Interest (126,000 20%) 530,000 -282,000 -122,000 126,000 25,200 | Note: Intra entity transfer was downstream so it has no effect on the non controlling interest Cost of goods sold Inventory Net income attributable to noncontrolling interest 535,250 467,875 25,200 $

B. Seacraft Sold Inventory to Protrade Calculation of Gross Profit on intra entity transfer 2017 67,000 41,875 Descriptions A. Intra entity transfer B. Cost Price (A/(100+60)% C. Gross Profit (A-B) D. Gross Profit on Transfer price (C/A)x 100 E. Stock retained F. Gross Profit Inculded in Stock retained (ExD) 25,125 37.50% 38,000 14,250 2018 97,000 60,625 36,375 37.50% 52,000 19,500 Calculation of Net consoldiated Cost of Goods sold Protrade Cost of goods sold Seacrat Cost of goods sold Unadjusted Consolidated cost of goods sold Less: Intra entity transfer of 2018 Less: Unrealized Prior year profit in 2017 Add: Unrealized current year profit in 2018 Net Consolidated Cost of goods sold 375,000 282,000 657,000 -97,000 -14,250 19,500 565,250 Calculation of Net Consolidated Inventory Protrade Inventory Seacrat Inventory Unadjusted Consolidated Inventory Less: Unrealized current year profit in 2018 Net Consolidated Inventory 363,000 127,000 490,000 -19,500 470,500

Net Income Attributable to NCI Net Income of Seacraft Sales Less: Cost of goods sold Less: Operating Expense Unadjusted Net Income of Seacraft Add: Unrealized Profit Prior year 2017 Less: Unrealized current year Profit 2018 Ajdusted Net Income of Seacraft Share of Non Controlling Interest (120,750 x 20%) 530,000 -282,000 -122,000 126,000 14,250 - 19,500 120,750 24,150 Cost of goods sold Inventory Net income attributable to noncontrolling interest 565,250 470,500 24,150 $

C. Protrade sells Building to Seacraft Year 2017 114,000 67,000 47,000 A. Sale price of Building B. Book Value C. Gain on Sale of Building (A-B) D. Life remaining E. Depreciation on excess building charged by Seacraft (67,000/5) F. Total Excess Depreciation in 2 years (9,400 x 2) i.e 2017 & 2018 5 years 9,400 18,800 Calculation of Net Consolidated Buildings (net) Building (net) in Protrade Building (net) in Seacraft Unadjusted Consolidated Buildings (net) Less: Gain on sale of Building Add: Excess Depreciation charged in 2 years Net Consolidated Buildings (net) 375,000 174,000 549,000 -47,000 18,800 520,800 Calculation of Net Operating Expenses Operating expense in Protrade Operating expense in Seacraft Unadjuted Consolidated Operating Expenses Less: Excess depreciation charge during the year Adjusted Net Consolidated operating Expense 167,000 122,000 289,000 -9,400 279,600

Net Income Attributable to NCI Net Income of Seacraft Sales Less: Cost of goods sold Less: Operating Expense Net Income of Seacraft Share of Non Controlling Interest (126,000 x 20%) 530,000 -282,000 -122,000 126,000 25,200 Note: Intra entity transfer was downstream so it has no effect on the non controlling interest Buildings (net) Operating Expenses Net income attributable to noncontrolling interest $ $ 520,800 279,600 25,200