Question

ProForm acquired 70 percent of ClipRite on June 30, 2017, for $770,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $450,000 was recognized and is being amortized at the rate of $12,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $330,000 at the acquisition date. The 2018 financial statements are as follows:

		ProForm				ClipRite
Sales	$	(820,000	)		$	(640,000	)
Cost of goods sold		545,000				410,000
Operating expenses		120,000				110,000
Dividend income		(49,000	)			0
Net income	$	(204,000	)		$	(120,000	)
Retained earnings, 1/1/18	$	(1,100,000	)		$	(870,000	)
Net income		(204,000	)			(120,000	)
Dividends declared		120,000				70,000
Retained earnings, 12/31/18	$	(1,184,000	)		$	(920,000	)
Cash and receivables	$	420,000			$	320,000
Inventory		310,000				720,000
Investment in ClipRite		770,000				0
Fixed assets		1,200,000				700,000
Accumulated depreciation		(400,000	)			(300,000	)
Totals	$	2,300,000			$	1,440,000
Liabilities	$	(816,000	)		$	(220,000	)
Common stock		(300,000	)			(300,000	)
Retained earnings, 12/31/18		(1,184,000	)			(920,000	)
Totals	$	(2,300,000	)		$	(1,440,000	)

ClipRite sold ProForm inventory costing $71,000 during the last six months of 2017 for $110,000. At year-end, 30 percent remained. ClipRite sells ProForm inventory costing $210,000 during 2018 for $270,000. At year-end, 10 percent is left. With these facts, determine the consolidated balances for the following:

Sales

Cost of Goods Sold

Operating Expenses

Dividend Income

Net Income Attributable to Noncontrolling Interest

Inventory

Noncontrolling Interest in Subsidiary, 12/31/18

Answer 1

All the balances have been calculated as affected by downstream inventory transfers.

____

Part 1)

The value of consolidated sales balance is arrived as below:

Proform Sales	820,000
Cliprite Sales	640,000
Intra-entity Sales	-270,000
Consolidated Sales Balance	$1,190,000

_____

Part 2)

The value of consolidated cost of goods sold balance is determined as follows:

Proform's Cost of Goods Sold Book Value	545,000
Cliprite's Cost of Goods Sold Book Value	410,000
Intra-Entity Transfers	-270,000
Adjusted Gross Profit Deferred in 2017 [(110,000 - 71,000)*30%]	-11,700
Deferral of 2018 Intra-Entity Gross Profit [(270,000 - 210,000)*10%]	6,000
Consolidated Cost of Goods Sold Balance	$679,300

_____

Part 3)

The value of consolidated operating expenses balance is calculated as below:

Proform's Operating Expenses Book Value	120,000
Cliprite's Operating Expenses Book Value	110,000
Amortization of Intangible Assets	12,000
Consolidated Operating Expenses Balance	$242,000

_____

Part 4)

The value of consolidated dividends balance would be $0 as a result elimination in consolidation.

_____

Part 5)

The value of net income attributable to noncontrolling interest is arrived as follows:

Cliprite's Reported Income for 2018	120,000
Amortization of Intangible Assets	-12,000
Cliprite's Adjusted Net Income	108,000
Net Income Attributable to Non Controlling Interest (108,000*30%)	$32,400

_____

Part 6)

The value of consolidated inventory balance is determined as follows:

Proform's Operating Expenses Book Value	310,000
Cliprite's Operating Expenses Book Value	720,000
Intra-Entity Gross Profit [(270,000 - 210,000)*10%]	-6,000
Consolidated Inventory Balance	$1,024,000

_____

Part 7)

The value of noncontrolling interest in subsidiary, 12/31/18 is calculated as below:

30% of Opening Book Value [(870,000 + 300,000)*30%)	351,000
Excess January 1 Intangible Allocation [(450,000 - 12,000/2)*30%)]	133,200
Net Income Attributable to Noncontrolling Interest	32,400
Dividends (70,000*30%)	-21,000
Non Controlling Interest, 12/31/18	$495,600