Question

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $342,000 in cash. The subsidiary's stockholders' equity accounts totaled $326,000 and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a nine-year remaining life) in Brey's accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (six-year remaining life).

Brey reported net income from its own operations of $64,000 in 2016 and $80,000 in 2017. Brey declared dividends of $19,000 in 2016 and $23,000 in 2017.

Brey sells inventory to Pitino as follows:

Year	Cost to Brey			Transfer Price to Pitino			Inventory Remaining at Year-End (at transfer price)
2016	$	69,000		$	115,000		$	25,000
2017		81,000			135,000			37,500
2018		92,800			160,000			50,000

At December 31, 2018, Pitino owes Brey $16,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2018, and the year then ended.

Note: Parentheses indicate a credit balance.

	Pitino				Brey
Sales revenues	$	(862,000	)		$	(366,000	)
Cost of goods sold		515,000				209,000
Expenses		185,400				67,000
Equity in earnings of Brey		(68,400	)			0
Net income	$	(230,000	)		$	(90,000	)
Retained earnings, 1/1/18	$	(488,000	)		$	(278,000	)
Net income (above)		(230,000	)			(90,000	)
Dividends declared		136,000				27,000
Retained earnings, 12/31/18	$	(582,000	)		$	(341,000	)
Cash and receivables	$	146,000			$	98,000
Inventory		255,000				136,000
Investment in Brey		450,000				0
Land, buildings, and equipment (net)		964,000				328,000
Total assets	$	1,815,000			$	562,000
Liabilities	$	(718,000	)		$	(71,000	)
Common stock		(515,000	)			(150,000	)
Retained earnings, 12/31/18		(582,000	)			(341,000	)
Total liabilities and equities	$	(1,815,000	)		$	(562,000	)

What was the annual amortization resulting from the acquisition-date fair-value allocations?

Were the intra-entity transfers upstream or downstream?

What intra-entity gross profit in inventory existed as of January 1, 2018?

What intra-entity gross profit in inventory existed as of December 31, 2018?

What amounts make up the $68,400 equity earnings of Brey account balance for 2018?

What is the net income attributable to the noncontrolling interest for 2018?

What amounts make up the $450,000 Investment in Brey account balance as of December 31, 2018?

Prepare the 2018 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.

Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.

Answer 1

					Amount in $
	Fair value of non controlling interest (10%)				38,000.00
	Fair value of controlling interest 90%				342,000.00	(38000/10 *90)
	Less : undervalued building				18,000.00
	Fair value of aqusition				324,000.00
	Cash paid				342,000.00
	Excess amount paid over fair value				18,000.00	(342000-324000)
Answer to Q1	Annual amortisation for patent of $18000				3,000.00	(18000/6 over life of patent)
Answer to Q2	As stock is transfer to pinto from brey it is upstrem transfers
	year	transfer price	cost	Gross profit	Gross profit %
	2016	115000	69000	46000	40%	(46000/115000*100)
	2017	135000	81000	54000	40%	(54000/135000*100)
	2018	160000	92800	67200	42%	(67200/160000*100)
	year	stock at year end	gross profit in stocks						year	stock at year end	gross profit in stocks
	2016	25000	10000	(25000*GP raito 40%)					2018	50000	21000	(50000*GP raito 42%)
	2017	37500	15000	(37500* GP raito 40%)							25000	answer of Q3
Answer q3			25000	(10000+15000)			Answer to Q4				46000	profit existed as on 31st december 2018
															Amount in $ Fair value of non controlling interest (10%)      38,000.00 Fair value of controlling interest 90%    342,000.00 (38000/10 *90) Less : undervalued building      18,000.00 Fair value of aqusition    324,000.00 Cash paid    342,000.00 Excess amount paid over fair value      18,000.00 (342000-324000) Answer to Q1 Annual amortisation for patent of $18000        3,000.00 (18000/6 over life of patent) Answer to Q2 As stock is transfer to pinto from brey it is upstrem transfers year transfer price cost Gross profit Gross profit % 2016 115000 69000 46000 40% (46000/115000*100) 2017 135000 81000 54000 40% (54000/135000*100) 2018 160000 92800 67200 42% (67200/160000*100) year stock at year end gross profit in stocks year stock at year end gross profit in stocks 2016 25000 10000 (25000*GP raito 40%) 2018 50000 21000 (50000*GP raito 42%) 2017 37500 15000 37500* GP raito 40% 25000 answer of Q3 Answer q3 25000 (10000+15000) Answer to Q4 46000 profit existed as on 31st december 2018