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In: Accounting

ProForm acquired 80 percent of ClipRite on June 30, 2017, for $1,440,000 in cash. Based on...

ProForm acquired 80 percent of ClipRite on June 30, 2017, for $1,440,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $800,000 was recognized and is being amortized at the rate of $19,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $360,000 at the acquisition date. The 2018 financial statements are as follows:

ProForm ClipRite
Sales $ (890,000 ) $ (780,000 )
Cost of goods sold 580,000 445,000
Operating expenses 190,000 145,000
Dividend income (56,000 ) 0
Net income $ (176,000 ) $ (190,000 )
Retained earnings, 1/1/18 $ (2,200,000 ) $ (940,000 )
Net income (176,000 ) (190,000 )
Dividends declared 190,000 70,000
Retained earnings, 12/31/18 $ (2,186,000 ) $ (1,060,000 )
Cash and receivables $ 490,000 $ 390,000
Inventory 380,000 790,000
Investment in ClipRite 1,440,000 0
Fixed assets 1,900,000 1,050,000
Accumulated depreciation (900,000 ) (200,000 )
Totals $ 3,310,000 $ 2,030,000
Liabilities $ (824,000 ) $ (670,000 )
Common stock (300,000 ) (300,000 )
Retained earnings, 12/31/18 (2,186,000 ) (1,060,000 )
Totals $ (3,310,000 ) $ (2,030,000 )

ClipRite sold ProForm inventory costing $78,000 during the last six months of 2017 for $180,000. At year-end, 30 percent remained. ClipRite sells ProForm inventory costing $245,000 during 2018 for $340,000. At year-end, 10 percent is left. With these facts, determine the consolidated balances for the following:

Consolidated Balance:

Sales

Cost of goods sold

Operating expenses

Dividend income

Net income attributable to noncontrolling interest

Inventory

Noncontrolling interest in subsidiary, 12/31/18

Solutions

Expert Solution

1.. Consolidated Sales=Sales of Company B + Sales of Company Z
=$890000+$780000-$340000=$1330000
2.. Consolidated cost of Goods Sold= B Company+Z Company- Intra Entity Transfer 2018-Realised Gross Profit 2017 +Deferred Gross Profit 2018
=$580000+$445000-$340000-$30600+$9500=$663900
3.. Operating Expense= B Company + Z Company + Annual Amortization
= $190000+$145000+$19000=$316000
4.. Dividend income will be 0 because elimited dividend paid by Subsidary during consolidation.
5. NCI Income = (Net Income of Company B + Net Incoe of Company Z+ Unamortised expense)X Percentage of NCI
=($176000+$190000)X20%= $73200
6.. Consolidated Inventory= Inventory of Company B + Inventory of Company Z- Unrealised Profit
=$380000+$790000-$30600-$9500=$1129900
Working Note:-
Unrealised Gross Profit2017= ( Sales-Cost of Inventory) X % left Inventory
=($180000-$78000)X30%=$30600
Unrealised Gross Profit2018= ( Sales-Cost of Inventory) X % left Inventory
=($340000-$245000)X10%=$9500

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