Question

ProForm acquired 60 percent of ClipRite on June 30, 2017, for $960,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $700,000 was recognized and is being amortized at the rate of $17,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $640,000 at the acquisition date. The 2018 financial statements are as follows: $ clipRite (740,000) 435,000 135,000 Sales Cost of goods sold Operating expenses Dividend income Net income Retained earnings, 1/1/18 Net income Dividends declared Retained earnings, 12/31/18 Cash and receivables Inventory Investment in clipRite Fixed assets Accumulated depreciation Totals Liabilities Common stock Retained earnings, 12/31/18 Totals ProForm $ (870,000) 570,000 170,000 (30,000) (160,000) $(1,600,000) (160,000) 170,000 $(1,590,000) $ 470.000 360,000 960,000 1,700,000 (300,000). $ 3,190,000 $ (800,000) (800,000) (1,590,000). $ (3,190,000) $ (170,000) $ (920,000) (170,000) 50,000 $(1,040,000) $ 370,000 770,000 950,000 (100,000) $ 1,990,000 $ (150,000) (800,000) (1,040,000) $(1,990,000) ProForm sold ClipRite inventory costing $76,000 during the last six months of 2017 for $160,000. At year-end, 30 percent remained. ProForm sells ClipRite inventory costing $235,000 during 2018 for $320,000. At year-end, 10 percent is left. Determine the consolidated balances for the following accounts:

Answer 1

Sales Cost of goods sold Operating Expenses Dividend Income Net Income attributable to noncontrolling interest Inventory Noncontrolling Interest in Subsidiary 12/31/18 Consolidated Balances $ 1,290,000 $ 668,300 $ 322,000 $ $ 61,200 $ 1,121,500 $ 944,600 Working Notes: Calculation of Deferred profit on Inter Entity Inventory Transfer At the Beginning of year 2018 Sales price Cost price Profit on intercompany inventory transfer Inventory remaining at year end Deferred profit (84,000 x 30%) 160,000 (76,000) 84,000 30% 25,200 At the End of year 2018 Sales price Cost price Profit on intercompany inventory transfer Inventory remaining at year end Deferred profit (85,000 10%) 320,000 (235,000) 85,000 10% 8,500

Calculation of Consolidated Balances Sales ProForm Sales Cliprite Sales 870,000 740,000 1,610,000 (320,000) 1,290,000 Less: Interentity sales transfer 2018 Consolidated Sales Balances Cost of goods sold ProForm Cost of Goods Sold Cliprite Cost of Goods sold Add: Deferred profit at the end of the year 2018 Less: Deferred profit at the beginning of the year 2018 Less: Intercompany sales transfer 2018 Consolidated Cost of Goods sold 570,000 435,000 1,005,000 8,500 (25,200) (320,000) 668,300 Operating Expenses ProForm Operating expenses Cliprite Operating expenses 170,000 135,000 305,000 17,000 322,000 Add: Amortization of Unrecorded intangible Consolidated Operating expenses Dividend Income Dividend Income Less: Share of ProForm in Dividend declared by Cliprite (50,000 x 60%) 30,000 (30,000) Consolidated Dividend Income

Net Income Attributable to NonControlling Interest Net Income of Cliprite Less: Amortization of unrecorded intangibles Adjusted net income of Cliprite Share of Noncontrolling Interest Net Income attributable to Noncontrolling interest (153,000 x 40%) 170,000 (17,000) 153,000 40% 61,200 Inventory ProForm Inventory Cliprite Inventory 360,000 770,000 1,130,000 (8,500) 1,121,500 Less: Deferred Profit at the end of the year 2018 Consolidated Inventory Noncontrolling Interest in Subsidiary 12/31/2018 Retained Earnings 01/01/18 (Cliprite) 920,000 Unrecorded Intangibles as on 06/30/2017 Less: Amortization during the year 2017 (1st July - 31st Dec) (17,000/2) Unrecorded Intangibles as on 01/01/2018 700,000 (8,500) 691,500 320,000 368,000 Share of Noncontrolling Interest Common stock in Cliprite (800,000 x 40%) Retained earnings, 01/01/18 (Cliprite) (920,000 x 40%) NI Income attributable to Noncontrolling Interest Share in Unamortizaed Intangibles as on 01/01/18 (691,500 x 40%) Less: Share in Intercompany Dividend (50,000 x 40%) Noncontrolling Interest in Subsidiary 12/31/2018 276,600 (20,000) 944,600

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.