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Your Skills SE On January 1, 2017, James Company purchased 100 percent of the outstanding voting stock of N Inc, for $1,000,000 in cash and other consideration. At the purchase date, Nolan had comm $500,000 and retained olan, on stock of and retained earnings of $185,000. James attributed the excess of acquisition-date fair over Nolans book value to a trade name with an estimated 25-year remaining useful life. James uses the equity method to account for its investment in Nolan. During the next two years, Nolan reported the following: Dividends Declared Inventory Transfers to James at Transfer Price Income 2017 $78,000 $25,000 2018 85,000 27,000 $190,000 210,000 Nolan sells inventory to James after a markup based on a gross profit rate. At the end of 2017 and 2018, 30 percent of the current year purchases remain in Jamess inventory
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Investment in Shawn analysis 01/01/2017 to 31/12/2018 Consideration paid (fair value) 01/01/2017 Shawn reported income Amortization of brand names Deffered profit of 2017 sales Shawn adjusted 2017 income Patricks ownership percentage Patricks share of Shawn income Equity in earnings of shawn, 2017 Patricks share of dividend in Shawn, 2017 (100% of 25000 Balance as on 31/12/2017 Shawn reported income Amortization of brand names S 1,000,000.00 $78,000.00 $(12,600.00 $ (11,400.00 $54,000.00 100% S 54,000.00 S54,000.00 $(25,000.00 $ 1,029,000.00 $85,000.00 $ (12,600.00 Recognised profit of 2017 upstream sales Deffered profit of 2018 sales Shawn adjusted 2018 income Patricks Ownership percentage Patricks share of Shawn income Equity in earnings of Shawn, 2017 Patricks share of dividend in Shawn, 2017(100% of 27000 Balance as on 31/12/2017 11,400.00 S (12,600.00) S 71,200.00 100% 71,200.00 $ 71,200.00 $ (27,000.00) $ 1,073,200.00 Ending inventory of 2017 Gross profit rate Unrealized gross profit in 2017 $ $ $ $ 57,000.00 1:190000*30% 11,400.00 |-57000*20% 63,000.00 |-21000030% 12,600.00 |-6300020% 20% Ending inventory of 2018 Gross profit rate Unrealized gross profit in 2018 20% 315,000.00 Excess allocated fair value Remaining useful life Annual excess fair-value amortizations 25 S12,600.00 315000/25 Worksheet adjustment entries Particulars Retained earnings-subsidia Cost of goods sold To remove 2017 unrealised gross profit from the beginning balance of the seller DR CR $11,400.00 $11,400.00 210,000.00 Sales Cost of goods sold To eliminate current year intra-entity transfer of invento 210,000.00 Cost of goods sold Invento To remove 2018 unrealised gross profit from ending accounts of the current year $12,600.00 S 12,600.00

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