On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $384,600. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $227,300. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $256,400.
On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $384,600. Stinson's book value on that date consisted of common stock of $100,000 and
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 | $133,800 | $167,250 | $55,750 |
| 2021 | 112,500 | 150,000 | 37,500 |
The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:
| McIlroy, Inc. | Stinson, Inc. | ||||||
| Sales | $ | (749,000 | ) | $ | (385,000 | ) | |
| Cost of goods sold | 492,200 | 235,000 | |||||
| Operating expenses | 200,935 | 80,000 | |||||
| Equity in earnings in Stinson | (36,359 | ) | 0 | ||||
| Net income | $ | (92,224 | ) | $ | (70,000 | ) | |
| Retained earnings, 1/1/21 | $ | (810,300 | ) | $ | (284,600 | ) | |
| Net income | (92,224 | ) | (70,000 | ) | |||
| Dividends declared | 50,100 | 20,100 | |||||
| Retained earnings, 12/31/21 | $ | (852,424 | ) | $ | (334,500 | ) | |
| Cash and receivables | $ | 290,200 | $ | 152,300 | |||
| Inventory | 272,600 | 132,700 | |||||
| Investment in Stinson | 424,713 | 0 | |||||
| Buildings (net) | 355,000 | 207,500 | |||||
| Equipment (net) | 253,300 | 90,800 | |||||
| Patents (net) | 0 | 25,500 | |||||
| Total assets | $ | 1,595,813 | $ | 608,800 | |||
| Liabilities | $ | (443,389 | ) | $ | (174,300 | ) | |
| Common stock | (300,000 | ) | (100,000 | ) | |||
| Retained earnings, 12/31/21 | (852,424 | ) | (334,500 | ) | |||
| Total liabilities and equities | $ | (1,595,813 | ) | $ | (608,800 | ) | |
(Note: Parentheses indicate a credit balance.)
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Show how McIlroy determined the $424,713 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.
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Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.
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