Homework Help is Here – Start Your Trial Now!
Business
Accounting
nc., Stinson's book value on that date consisted of co the acquisition-date fair value of the 40 percent with a 10-year remaining life) that were underval unrecorded customer list (15-year remaining life) acquisition-date fair value was assigned to good nvestment in Stinson account and no goodwil ir payables or receivables. ntra-entity inventory sales between the two com

nc., Stinson's book value on that date consisted of co the acquisition-date fair value of the 40 percent with a 10-year remaining life) that were underval unrecorded customer list (15-year remaining life) acquisition-date fair value was assigned to good nvestment in Stinson account and no goodwil ir payables or receivables. ntra-entity inventory sales between the two com

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
On January 1, 2020, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $348,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $205,800. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $232,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $52,300 and an unrecorded customer list (15-year remaining life) assessed at a $46,800 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, Mcllroy 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: Ending Balance (at transfer price) $50,625 37,500 Transfer Price Cost to McIlroy $121,500 112,500 Year to Stinson $151,875 150,000 2020 2021 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: Stinson, McIlroy, Inc. $ (705,000 463,300 189,400 (32,580) Inc. $ (342,000) 209,200 Sales Cost of goods sold Operating expenses Equity in earnings in Stinson 71,400 $ (61,400) $ (280,500) (61,400) 15,400 $ (326,500) $ 148,700 129,600 Net income $ (84,880) $ (732,200) (84,880) 45,500 $ (771,580) Retained earnings, 1/1/21 Net income Dividends declared Retained earnings, 12/31/21 Cash and receivables $ Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) 262,000 246,200 401,025 312,000 202,700 86,300 222,800 20,400 $ 587,700 $ (161,200) (100,000) (326,500) $ (587,700) Total assets $ 1,444,025 (372,445) (300,000) (771,580) Liabilities $ Common stock Retained earnings, 12/31/21 Total liabilities and equities $(1,444,025) (Note: Parentheses indicate a credit balance.) a. Show how Mcllroy determined the $401,025 Investment in Stinson account balance. Assume that Mcllroy 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, 2021.
Transcribed Image Text:On January 1, 2020, Mcllroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $348,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $205,800. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $232,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $52,300 and an unrecorded customer list (15-year remaining life) assessed at a $46,800 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, Mcllroy 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: Ending Balance (at transfer price) $50,625 37,500 Transfer Price Cost to McIlroy $121,500 112,500 Year to Stinson $151,875 150,000 2020 2021 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: Stinson, McIlroy, Inc. $ (705,000 463,300 189,400 (32,580) Inc. $ (342,000) 209,200 Sales Cost of goods sold Operating expenses Equity in earnings in Stinson 71,400 $ (61,400) $ (280,500) (61,400) 15,400 $ (326,500) $ 148,700 129,600 Net income $ (84,880) $ (732,200) (84,880) 45,500 $ (771,580) Retained earnings, 1/1/21 Net income Dividends declared Retained earnings, 12/31/21 Cash and receivables $ Inventory Investment in Stinson Buildings (net) Equipment (net) Patents (net) 262,000 246,200 401,025 312,000 202,700 86,300 222,800 20,400 $ 587,700 $ (161,200) (100,000) (326,500) $ (587,700) Total assets $ 1,444,025 (372,445) (300,000) (771,580) Liabilities $ Common stock Retained earnings, 12/31/21 Total liabilities and equities $(1,444,025) (Note: Parentheses indicate a credit balance.) a. Show how Mcllroy determined the $401,025 Investment in Stinson account balance. Assume that Mcllroy 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, 2021.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 5 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting for Corporate restructuring
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS