On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock...
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Accounting
On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $219,900. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $79,300 and an unrecorded customer list (15-year remaining life) assessed at a $54,900 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)
2020
$127,800
$159,750
$53,250
2021
112,800
150,400
37,600
The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:
McIlroy, Inc.
Stinson, Inc.
Sales
$
(736,000
)
$
(368,000
)
Cost of goods sold
483,700
224,800
Operating expenses
198,540
76,600
Equity in earnings in Stinson
(34,256
)
0
Net income
$
(88,016
)
$
(66,600
)
Retained earnings, 1/1/21
$
(780,200
)
$
(283,000
)
Net income
(88,016
)
(66,600
)
Dividends declared
48,300
19,000
Retained earnings, 12/31/21
$
(819,916
)
$
(330,600
)
Cash and receivables
$
279,400
$
150,500
Inventory
262,400
131,200
Investment in Stinson
415,112
0
Buildings (net)
339,000
205,600
Equipment (net)
242,000
89,400
Patents (net)
0
24,000
Total assets
$
1,537,912
$
600,700
Liabilities
$
(417,996
)
$
(170,100
)
Common stock
(300,000
)
(100,000
)
Retained earnings, 12/31/21
(819,916
)
(330,600
)
Total liabilities and equities
$
(1,537,912
)
$
(600,700
)
(Note: Parentheses indicate a credit balance.)
Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
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