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 contributed to noncontrolling interest

Inventory

Noncontrolling interest in subsidiary 12/31/18

Answer 1

Consolidated Figures

	Proform	Adjustment	ClipRate		Consolidated Total
1)Sales	820,000		640,000	(-110,000)INTRA (-17,700) PURP (W1*)	1,332,300
2)Cost Of Sale	545,000	(-110,000)	410,000		(845,000)
4)Dividend Income	49,000(W2)				NIL(W2)*
3)Operating Cost	(120,000)		(110,000)
	..............	Amortisation(unrecorded)	(12,000)		(242,000)
Net Income	204,000		108,000		245,300
Income attributate to:
Controling interest				(245,300-32,400)	212,900
5)Non controlling Interest				(108,000*30%(nci percent)	32,400

				70%	Total
6)Inventory	310,000	(17,770) PURP (W1)		(720,000*70%)=504,000	796,300

7) Non Controlling interest

At Acquasition Fair Value		330,000
unrecorded intangible(450,000*30%)		(135)
Amortisation(12,000*1.5year)*30%		(5400)
Profit of year Attributable to NCI		32,400
Dividend Received to NCI(W2)(70,000-49,000)		(21,000)
NCI A Year End		201,000

Ownership

ProForm--------70% 1.5Years ago----ClipRite

W1) Provision For Unrealised profit

Intracompany transaction means sales between group after acquasition.. (Profit realised should be cancelled, Deducting from Sales and Cost of Sales figure)

At 12/31/2018

Two unsold group of inventory exist.

a) Profit Recognised in ClipRite on 2017's sales = (110,000-71,000) =39,000

out of which 70% can be recognised as sold outside the group erned real profit. But remaining 30% (is like taking out of right pocket and putting it in Left And realising a Profit is not acceptable.)

Unrealised Profit = 39,000 *30% =11,700

This should deduct both from Sales and Cos figure in group statementand inventory of Profrom( since a cost of Profom and Sales to ClipRate is already accounted need to be unrealised.)

b)New stock remaining Unrealised profit 2018's = (270,000 - 210,000)* 10% = 6,000

This should also be deduct both from Sales and Cos figure in group statement and inventory of Profrom

Total PURP=11,700+6,000 =17,700

W2) Dividend Income

The dividend income of 49,000 is from subsidiary ClipRate Which cannot be recognised in group Income Statement.

dividend paid to 70% is $49,000 for 100% will be..

   =$70,000

Retained earning of ClipRate31/12/2018 =870,000(starting RE)+120,000(Net profit)-70,000 (dividend)=920,000

this clears the assumption of dividend is from subsidiary.