On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year Cost to McIlroy Transfer Price to Stinson Ending Balance (at transfer price) 2020 $120,000 $150,000 $50,000 2021 112,000 160,000 40,000 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (700,000 ) $ (335,000 ) Cost of goods sold 460,000 205,000 Operating expenses 188,000 70,000 Equity in earnings in Stinson (28,000 ) 0 Net income $ (80,000 ) $ (60,000 ) Retained earnings, 1/1/21 $ (695,000 ) $ (280,000 ) Net income (80,000 ) (60,000 ) Dividends declared 45,000 15,000 Retained earnings, 12/31/21 $ (730,000 ) $ (325,000 ) Cash and receivables $ 248,000 $ 148,000 Inventory 233,000 129,000 Investment in Stinson 411,000 0 Buildings (net) 308,000 202,000 Equipment (net) 220,000 86,000 Patents (net) 0 20,000 Total assets $ 1,420,000 $ 585,000 Liabilities $ (390,000 ) $ (160,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (730,000 ) (325,000 ) Total liabilities and equities $ (1,420,000 ) $ (585,000 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year Cost to McIlroy Transfer Price to Stinson Ending Balance (at transfer price) 2020 $120,000 $150,000 $50,000 2021 112,000 160,000 40,000 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (700,000 ) $ (335,000 ) Cost of goods sold 460,000 205,000 Operating expenses 188,000 70,000 Equity in earnings in Stinson (28,000 ) 0 Net income $ (80,000 ) $ (60,000 ) Retained earnings, 1/1/21 $ (695,000 ) $ (280,000 ) Net income (80,000 ) (60,000 ) Dividends declared 45,000 15,000 Retained earnings, 12/31/21 $ (730,000 ) $ (325,000 ) Cash and receivables $ 248,000 $ 148,000 Inventory 233,000 129,000 Investment in Stinson 411,000 0 Buildings (net) 308,000 202,000 Equipment (net) 220,000 86,000 Patents (net) 0 20,000 Total assets $ 1,420,000 $ 585,000 Liabilities $ (390,000 ) $ (160,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (730,000 ) (325,000 ) Total liabilities and equities $ (1,420,000 ) $ (585,000 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter12: Intangibles
Section: Chapter Questions
Problem 18E
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On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to
Intra-entity inventory sales between the two companies have been made as follows:
| Year | Cost to McIlroy | Transfer Price to Stinson |
Ending Balance (at transfer price) |
| 2020 | $120,000 | $150,000 | $50,000 |
| 2021 | 112,000 | 160,000 | 40,000 |
The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:
| McIlroy, Inc. | Stinson, Inc. | ||||||
| Sales | $ | (700,000 | ) | $ | (335,000 | ) | |
| Cost of goods sold | 460,000 | 205,000 | |||||
| Operating expenses | 188,000 | 70,000 | |||||
| Equity in earnings in Stinson | (28,000 | ) | 0 | ||||
| Net income | $ | (80,000 | ) | $ | (60,000 | ) | |
| Retained earnings, 1/1/21 | $ | (695,000 | ) | $ | (280,000 | ) | |
| Net income | (80,000 | ) | (60,000 | ) | |||
| Dividends declared | 45,000 | 15,000 | |||||
| Retained earnings, 12/31/21 | $ | (730,000 | ) | $ | (325,000 | ) | |
| Cash and receivables | $ | 248,000 | $ | 148,000 | |||
| Inventory | 233,000 | 129,000 | |||||
| Investment in Stinson | 411,000 | 0 | |||||
| Buildings (net) | 308,000 | 202,000 | |||||
| Equipment (net) | 220,000 | 86,000 | |||||
| Patents (net) | 0 | 20,000 | |||||
| Total assets | $ | 1,420,000 | $ | 585,000 | |||
| Liabilities | $ | (390,000 | ) | $ | (160,000 | ) | |
| Common stock | (300,000 | ) | (100,000 | ) | |||
| Retained earnings, 12/31/21 | (730,000 | ) | (325,000 | ) | |||
| Total liabilities and equities | $ | (1,420,000 | ) | $ | (585,000 | ) | |
(Note: Parentheses indicate a credit balance.)
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Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.
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Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
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