Question

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $486,000 in cash. The subsidiary's stockholders' equity accounts totaled $470,000 and the noncontrolling interest had a fair value of $54,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $45,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life).

Brey reported net income from its own operations of $80,000 in 2016 and $96,000 in 2017. Brey declared dividends of $27,000 in 2016 and $31,000 in 2017.

Year	Cost to Brey			Transfer Price to Pitino			Inventory Remaining at Year-End (at transfer price)
2016	$	85,000		$	195,000		$	41,000
2017		118,250			215,000			53,000
2018		156,000			240,000			40,000

At December 31, 2018, Pitino owes Brey $32,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

	Pitino				Brey
Sales revenues	$	(894,000	)		$	(446,000	)
Cost of goods sold		531,000				225,000
Expenses		187,000				90,000
Equity in earnings of Brey		(117,090	)			0
Net income	$	(293,090	)		$	(131,000	)
Retained earnings, 1/1/18	$	(520,000	)		$	(310,000	)
Net income (above)		(293,090	)			(131,000	)
Dividends declared		145,000				52,000
Retained earnings, 12/31/18	$	(668,090	)		$	(389,000	)
Cash and receivables	$	162,000			$	114,000
Inventory		335,000				216,000
Investment in Brey		621,675				0
Land, buildings, and equipment (net)		980,000				344,000
Total assets	$	2,098,675			$	674,000
Liabilities	$	(835,585	)		$	(7,000	)
Common stock		(595,000	)			(278,000	)
Retained earnings, 12/31/18		(668,090	)			(389,000	)
Total liabilities and equity	$	(2,098,675	)		$	(674,000	)

What was the annual amortization resulting from the acquisition-date fair-value allocations?

Were the intra-entity transfers upstream or downstream?

What intra-entity gross profit in inventory existed as of January 1, 2018?

What intra-entity gross profit in inventory existed as of December 31, 2018?

What amounts make up the $117,090 Equity Earnings of Brey account balance for 2018?

What is the net income attributable to the noncontrolling interest for 2018?

What amounts make up the $621,675 Investment in Brey account balance as of December 31, 2018?

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

a. What was the annual amortization resulting from the acquisition-date fair-value allocations?
b. Were the intra-entity transfers upstream or downstream?
c. What intra-entity gross profit in inventory existed as of January 1, 2018?
d. What intra-entity gross profit in inventory existed as of December 31, 2018?

	Annual amortization Intra-entity transfers Intra-entity gross profit, January 1, 2018 Intra-entity gross profit, December 31, 2018

e. What amounts make up the $117,090 Equity Earnings of Brey account balance for 2018?

	Brey’s reported net income Excess fair value amortization Realized gross profit Deferred gross profit Adjusted subsidiary net income Ownership % Equity in earnings of Brey

f. What is the net income attributable to the noncontrolling interest for 2018?

	Net income attributable to noncontrolling interest

g. What amounts make up the $621,675 Investment in Brey account balance as of December 31, 2018?

	Investment in Brey (consideration transferred) Net income of Brey Reported 2016 2017 2018 Total 0 Intra-entity gross profit, 12/31/18 Adjusted net income 2016-2018 0 Pitino’s ownership % Excess amortizations Dividends declared by Brey 2016 2017 2018 Total 0 Pitino's ownership % Investment in Brey, 12/31/18 $0

h. Prepare the 2018 worksheet entry to eliminate the subsidiary's beginning owners' equity balances. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Consolidation Worksheet Entries

Note: Enter debits before credits.

Transaction Accounts Debit Credit 1 i. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies. Consolidated Balance Sales revenues Cost of goods sold Expenses Equity in earnings of Brey Noncontrolling interest in consolidated net income Consolidated net income to parent Retained earnings, 1/1 Dividends declared Retained earnings, 12/31 Cash and receivables Inventory Investment in Brey Land, buildings, and equipment Patented technology Total Assets Liabilities Noncontrolling interest in Brey, 12/31 Common Stock Retained earnings, 12/31 Total liabilities and stockholders' equity

Answer 1