In: Accounting
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:
ProForm | ClipRite | ||||||
Sales | $ | (870,000 | ) | $ | (740,000 | ) | |
Cost of goods sold | 570,000 | 435,000 | |||||
Operating expenses | 170,000 | 135,000 | |||||
Dividend income | (30,000 | ) | 0 | ||||
Net income | $ | (160,000 | ) | $ | (170,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,600,000 | ) | $ | (920,000 | ) | |
Net income | (160,000 | ) | (170,000 | ) | |||
Dividends declared | 170,000 | 50,000 | |||||
Retained earnings, 12/31/18 | $ | (1,590,000 | ) | $ | (1,040,000 | ) | |
Cash and receivables | $ | 470,000 | $ | 370,000 | |||
Inventory | 360,000 | 770,000 | |||||
Investment in ClipRite | 960,000 | 0 | |||||
Fixed assets | 1,700,000 | 950,000 | |||||
Accumulated depreciation | (300,000 | ) | (100,000 | ) | |||
Totals | $ | 3,190,000 | $ | 1,990,000 | |||
Liabilities | $ | (800,000 | ) | $ | (150,000 | ) | |
Common stock | (800,000 | ) | (800,000 | ) | |||
Retained earnings, 12/31/18 | (1,590,000 | ) | (1,040,000 | ) | |||
Totals | $ | (3,190,000 | ) | $ | (1,990,000 | ) | |
ClipRite sold ProForm inventory costing $76,000 during the last six months of 2017 for $160,000. At year-end, 30 percent remained. ClipRite sells ProForm inventory costing $235,000 during 2018 for $320,000. At year-end, 10 percent is left. With these facts, determine the consolidated balances for the following:
Noncontrolling Interest in Sub 12-31-18:
Computation of Non Controlling Interest in Subsidary | |
Particular | Amount |
Beginning Book Value | $705,920 |
Excess Intangible Allocation | $276,600 |
NCI In Subsidary income | $67,880 |
Dividend | -$20,000 |
Total NCI | $1,030,400 |
Working Note:- |
Unrealised Gross Profit2017= ( Sales-Cost of Inventory) X % left Inventory |
=($160000-$76000)X30%=$25200 |
Unrealised Gross Profit2018= ( Sales-Cost of Inventory) X % left Inventory |
=($320000-$235000)X10%=$8500 |
Computation of NCI in Subsidary income | |
Reported Subsidary income 2017 | $170,000 |
Intangible Amortisation | -$17,000 |
2017 Gross Profit Recognized | $25,200 |
2018 Gross profit deferred | -$8,500 |
Subsidary Realized Income 2013 | $169,700 |
NCI Percentage | 40% |
NCI Subsidary income | $67,880 |
Computation of share of NCI in Subsidary's Book Value | |
Asset | $1,990,000 |
less : Liabilities | -$150,000 |
Dividend Paid | -$50,000 |
2017Unrealised Gross Profit | -$25,200 |
Total Book Value | $1,764,800 |
NCI Share | 40% |
Book Value's NCI | $705,920 |
Computation of excess Intangible Allocation | |
Intangibe=($700000-($17000X1/2))X40%=$276600 |