Question

Problem 5-28 (LO 5-2, 5-3, 5-4) ProForm acquired 80 percent of ClipRite on June 30, 2017, for $1,200,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $650,000 was recognized and is being amortized at the rate of $16,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $300,000 at the acquisition date. The 2018 financial statements are as follows: clipRite (720,000) 430,000 ProForm Sales Cost of goods sold (860,000) 565,000 Operating expenses 130,000 160,000 (32,000) Dividend income $ (167,000) (160,000) Net income Retained earnings, 1/1/18 Net income (1,500,000) (167,000) 160,000 $ (910,000) (160,000) Dividends declared 40,000 $(1,507,000) $(1,030,000) Retained earnings, 12/31/18 Cash and receivables 460,000 350,000 360,000 Inventory Investment in ClipRite Fixed assets 760,000 1,200,000 0 1,600,000 900,000 (600,000) (150,000) Accumulated depreciation $3,010,000 1,870,000 Totals Liabilities $ (803,000) (700,000) (1,507,000) $(3,010,000) (140,000) (700,000) Common stock Retained earnings, 12/31/18 (1,030,000) $(1,870,000) Totals ProForm sold ClipRite inventory costing $75,000 during the last six months of 2017 for $150,000. At year-end, 30 percent remained ProForm sells ClipRite inventory costing $230,000 during 2018 for $310,000. At year-end, 10 percent is left. Determine the consolidated balances for the following accounts: Answer is not complete. Consolidated Balance Sales S 1,270,000 Cost of goods sold 670,500 Operating expenses 306,000 Dividend income S Net income attributable to noncontrolling interest Inventory Noncontrolling interest in subsidiary, 12/31/18 1,102,000

Answer 1

Consolidated Balances $ 1,270,000 Sales $ Cost of goods sold 670,500 Operating Expenses 306,000 Dividend Income $ Net Income attributable to noncontrolling interest 28,800 Inventory Noncontrolling Interest in Subsidiary 12/31/18 $1,102,000 $ 471,200 Working Notes: Calculation of Deferred profit on Inter Entity Inventory Transfer At the Beginning of year 2018 Sales price Cost price 150,000 (75,000) Profit on intercompany inventory transfer 75,000 Inventory remaining at year end 30% Deferred profit (75,000 x 30 % ) 22,500 At the End of year 2018 Sales price 310,000 (230,000) Cost price Profit on intercompany inventory transfer 80,000 Inventory remaining at year end 10% Deferred profit (80,000 x 10%) 8,000

Calculation of Consolidated Balances Sales ProForm Sales 860,000 Cliprite Sales 720,000 1,580,000 Less: Interentity sales transfer 2018 (310,000) Consolidated Sales Balances 1,270,000 Cost of goods sold ProForm Cost of Goods Sold 565,000 Cliprite Cost of Goods sold 430,000 995,000 Add: Deferred profit at the end of the year 2018 8,000 Less: Deferred profit at the beginning of the year 2018 (22,500) (310,000) Less: Intercompany sales transfer 2018 Consolidated Cost of Goods sold 670,500 Operating Expenses ProForm Operating expenses 160,000 Cliprite Operating expenses 130,000 290,000 Add: Amortization of Unrecorded intangible 16,000 Consolidated Operating expenses 306,000

Dividend Income Dividend Income 32,000 Less: Share of ProForm in Dividend declared by Cliprite (40,000 x 80 % ) (32,000) Consolidated Dividend Income Net Income Attributable to Non Controlling Interest Net Income of Cliprite 160,000 (16,000) Less: Amortization of unrecorded intangibles Adjusted net income of Cliprite 144,000 Share of Noncontrolling Interest Net Income attributable to Noncontrolling interest (144,000 x 20 %) 20% 28,800 Inventory ProForm Inventory Cliprite Inventory 350,000 760,000 1,110,000 (8,000) Less: Deferred Profit at the end of the year 2018 Consolidated Inventory 1,102,000 Noncontrolling Interest in Subsidiary 12/31/2018 Retained Earnings 01/01/18 (Cliprite) 910,000 Unrecorded Intangibles as on 06/30/2017 Less: Amortization during the year (1st July 31st Dec) (16,000/2) 650,000 S (8,000) Unrecorded Intangibles as on 01/01/2018 642,000

Share of Noncontrolling Interest Common stock in Cliprite (700,000 x 20% ) Retained earnings, 01/01/18 (Cliprite) (910,000 x 20%) NI Income attributable to Noncontrolling Interest Share in Unamortizaed Intangibles as on 01/01/18 (642,000 x 20 %) Less: Share in Intercompany Dividend (40,000 x 20 %) 140,000 182,000 28,800 128,400 (8,000) Noncontrolling Interest in Subsidiary 12/31/2018 471,200 Note: As the Intra entity inventory transfer is downward i.e. parent sells to subsidiary. Therefore, Noncontrolling interest doesn't have any share in deferred profit.