Question

Following are several figures reported for Allister and Barone as of December 31, 2015:

	Allister		Barone
Inventory	$	550,000	$	350,000
Sales		1,100,000		900,000
Investment income		not given
Cost of goods sold		550,000		450,000
Operating expenses		255,000		325,000

Allister acquired 90 percent of Barone in January 2014. In allocating the newly acquired subsidiary’s fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $66,000 that was unrecorded on its accounting records and had a six-year remaining life. Any remaining excess fair value over Barone’s book value was attributed to goodwill. During 2015, Barone sells inventory costing $135,000 to Allister for $190,000. Of this amount, 20 percent remains unsold in Allister’s warehouse at year-end.

Determine balances for the following items that would appear on Allister’s consolidated financial statements for 2015: Amounts Inventory Sales Cost of goods sold Operating expenses Net income attributable to Noncontrolling Interest

Answer 1

		Amount
1	Inventory	$   8,89,000
2	Sales	$ 18,10,000
3	Cost of Goods Sold	$   8,21,000
4	Operating Expenses	$   5,91,000
5	Net income attributable to Noncontrolling interest	$         3,000
	Workings:
	Customer List Amortization	=	$66,000 / 6 years
		=	$                                                                    11,000	per year
	Intra entity Gross Profit	=	$1,90,000 - $1,35,000
		=	$                                                                    55,000
	Inventory remaining at year end	=	20%
	Unrealized Intra entity gross profit, 12/31	=	$55,000 X 20%
		=	$                                                                    11,000
1	Inventory	=	Add both the book values and subtract the unrealized intra entity gross profit
		=	$5,50,000 + $3,50,000 - $11,000
		=	$                                                                8,89,000
2	Sales	=	Add both the book values and subtract intra entity transfer $1,90,000
		=	$11,00,000 + $9,00,000 - $1,90,000
		=	$                                                              18,10,000
3	Cost of Goods Sold	=	Add both the book values and subtract intra entity transfer $1,90,000 and add unrealized intra entity gross profit
		=	$5,50,000 + $4,50,000 - $1,90,000 + $11,000
		=	$                                                                8,21,000
4	Operating Expenses	=	Add both the book values and amortization expense for the period
		=	$2,55,000 + $3,25,000 + $11,000
		=	$                                                                5,91,000
5	Net income attributable to Noncontrolling interest	=	20% of Barone's net income* $1,25,000 less eccess fair value amortization $11,000 and deferring $11,000 unrealized gross profit. (Gross profit is included in this computation because the transfer was upstream from Barone to Allister)
		=	[($1,25,000 X 0.20) - $11,000 - $11,000]
		=	$                                                                      3,000
	Barone's net income*	=	$9,00,000 - $4,50,000 - $3,25,000
		=	$                                                                1,25,000