Question

On January 1, 2017, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $362,400. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $214,200. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $241,600. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $82,600 and an unrecorded customer list (15-year remaining life) assessed at a $57,900 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables. Intra-entity inventory sales between the two companies have been made as follows: Year Cost to McIlroy Transfer Price to Stinson Ending Balance (at transfer price) 2017 $132,000 $165,000 $55,000 2018 113,100 150,800 37,700 The individual financial statements for these two companies as of December 31, 2018, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (745,000 ) $ (378,000 ) Cost of goods sold 489,600 230,800 Operating expenses 200,495 78,600 Equity in earnings in Stinson (35,463 ) 0 Net income $ (90,368 ) $ (68,600 ) Retained earnings, 1/1/18 $ (800,900 ) $ (284,100 ) Net income (90,368 ) (68,600 ) Dividends declared 49,300 19,800 Retained earnings, 12/31/18 $ (841,968 ) $ (332,900 ) Cash and receivables $ 286,900 $ 151,500 Inventory 269,500 132,100 Investment in Stinson 409,651 0 Buildings (net) 350,000 206,800 Equipment (net) 249,800 90,300 Patents (net) 0 25,200 Total assets $ 1,565,851 $ 605,900 Liabilities $ (423,883 ) $ (173,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/18 (841,968 ) (332,900 ) Total liabilities and equities $ (1,565,851 ) $ (605,900 ) a.Show how McIlroy determined the $409,651 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income. b.Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018.

Show how McIlroy determined the $409,651 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.

	Consideration transferred Increase in Stinson’s retained earnings 1/1/17 to 1/1/18 Excess fair value amortization                               2017 ending inventory profit deferral McIlroy’s equity in earnings of Stinson for 2018 Stinson 2015 dividends declared to McIlroy Investment account balance 12/31/18

Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2018. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the NCI and Consolidated Totals columns should be entered with a minus sign.)

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MCILROY, INC., AND STINSON, INC. Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Accounts McIlroy Stinson Debit Credit NCI Consolidated Totals Sales $(745,000) $(378,000) Cost of goods sold 489,600 230,800 Operating expenses 200,495 78,600 Equity in earnings of Stinson (35,463) 0 Separate company net income (90,368) (68,600) Consolidated net income To noncontrolling interest To McIlroy, Inc. Retained earnings, 1/1 (800,900) (284,100) Net income (90,368) (68,600) Dividends declared 49,300 19,800 Retained earnings, 12/31 $(841,968) $(332,900) Cash and receivables $286,900 $151,500 Inventory 269,500 132,100 Investment in Stinson 409,651 0 Buildings (net) 350,000 206,800 Equipment (net) 249,800 90,300 Patents (net) 0 25,200 Customer list Goodwill Total assets $1,565,851 $605,900 Liabilities (423,883) (173,000) Common stock (300,000) (100,000) Noncontrolling interest 1/1 Noncontrolling interest 12/31 Retained earnings, 12/31 (841,968) (332,900) Total liabilities and equities $(1,565,851) $(605,900)

Answer 1