Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $612,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $765,000 and the fair value of the 20 percent noncontrolling interest was $153,000. 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	$	880,000		$	600,000
Cost of goods sold		410,000			317,000
Operating expenses		174,000			129,000
Retained earnings, 1/1/18		980,000			420,000
Inventory		370,000			144,000
Buildings (net)		382,000			181,000
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 $114,000 in 2017 and $134,000 in 2018. Of this inventory, Seacraft retained and then sold $52,000 of the 2017 transfers in 2018 and held $66,000 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 $74,000 in 2017 and $104,000 in 2018. Of this inventory, $45,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $59,000 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 $128,000, although its book value was only $74,000 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:

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

Part A

cost of goods sold	$598250
inventory	$489250
noncontrolling interest in subsidiary's net income	$30800

Cost of goods sold

Protrade’s cost of goods sold	410000
Seacraft’s cost of goods sold	317000
Elimination of 2018 intra-entity transfers	(134000)
Reduction of beginning Inventory because of 2017 unrealized gross profit (52000/1.6)-52000	(19500)
Reduction of ending inventory because of 2018 unrealized gross profit (66000-(66000/1.6)	24750
Consolidated cost of goods sold	$598250

Consolidated inventory

               

Protrade book value	370000
Seacraft book value	144000
Defer ending unrealized gross profit	(24750)
Consolidated inventory	$489250

noncontrolling interest in subsidiary's net income

sales	600000
less: cost of goods sold	317000
Less: operating expenses	129000
net income	154000
ownership	20%
noncontrolling interest in subsidiary's net income	$30800

Part B

cost of goods sold	$628250
inventory	$491875
noncontrolling interest in subsidiary's net income	$29750

Cost of goods sold

Protrade’s cost of goods sold	410000
Seacraft’s cost of goods sold	317000
Elimination of 2018 intra-entity transfers	(104000)
Reduction of beginning Inventory because of 2017 unrealized gross profit (45000/1.6)-45000	(16875)
Reduction of ending inventory because of 2018 unrealized gross profit (59000-(59000/1.6)	22125
Consolidated cost of goods sold	$628250

Consolidated inventory

               

Protrade book value	370000
Seacraft book value	144000
Defer ending unrealized gross profit	(22125)
Consolidated inventory	$491875

noncontrolling interest in subsidiary's net income

sales	600000
less: cost of goods sold	317000
Less: operating expenses	129000
net income	154000
unrealized profit prior year	16875
unrealized profit current year	(22125)
	148750
ownership	20%
noncontrolling interest in subsidiary's net income	$29750

Part C

consolidated buildings	$523800
consolidated operating expenses	$292200
noncontrolling interest in subsidiary's net income	$30800

consolidated buildings

Protrade’s building	382000
Seacraft’s building	181000
removal of write up from transfer (74000-128000)	(54000)
years used (128000/5-((128000/5)-74000/5))	14800
consolidated buildings	$523800

consolidated operatinge expenses

Protrade operating expense	174000
Seacraft operating expense	129000
Less: annual depreciation (128000-74000)/5	(10800)
Consolidated inventory	$292200

noncontrolling interest in subsidiary's net income

sales	600000
less: cost of goods sold	317000
Less: operating expenses	129000
net income	154000
ownership	20%
noncontrolling interest in subsidiary's net income	$30800