FINANCIAL ACCOUNTING
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ISBN: 9781259964947
Author: Libby
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Transcribed Image Text:On January 1, 2020, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $348,000.
Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $205,800. Also,
the acquisition-date fair value of the 40 percent noncontrolling interest was $232,000. The subsidiary held patents
(with a 10-year remaining life) that were undervalued within the company's accounting records by $52,300 and an
unrecorded customer list (15-year remaining life) assessed at a $46,800 fair value. Any remaining excess
acquisition-date fair value was assigned to goodwill. Since acquisition, Mcllroy 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:
Ending Balance
(at transfer price)
$50,625
37,500
Transfer Price
Cost to McIlroy
$121,500
112,500
Year
to Stinson
$151,875
150,000
2020
2021
The individual financial statements for these two companies as of December 31, 2021, and the year then ended
follow:
Stinson,
McIlroy, Inc.
$ (705,000
463,300
189,400
(32,580)
Inc.
$ (342,000)
209,200
Sales
Cost of goods sold
Operating expenses
Equity in earnings in Stinson
71,400
$ (61,400)
$ (280,500)
(61,400)
15,400
$ (326,500)
$ 148,700
129,600
Net income
$
(84,880)
$ (732,200)
(84,880)
45,500
$ (771,580)
Retained earnings, 1/1/21
Net income
Dividends declared
Retained earnings, 12/31/21
Cash and receivables
$
Inventory
Investment in Stinson
Buildings (net)
Equipment (net)
Patents (net)
262,000
246,200
401,025
312,000
202,700
86,300
222,800
20,400
$ 587,700
$ (161,200)
(100,000)
(326,500)
$ (587,700)
Total assets
$ 1,444,025
(372,445)
(300,000)
(771,580)
Liabilities
$
Common stock
Retained earnings, 12/31/21
Total liabilities and equities
$(1,444,025)
(Note: Parentheses indicate a credit balance.)
a. Show how Mcllroy determined the $401,025 Investment in Stinson account balance. Assume that Mcllroy defers
100 percent of downstream intra-entity profits against its share of Stinson's income.
b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of
December 31, 2021.
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