Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, 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 2019 and $80,000 in 2020. Brey declared dividends of $19,000 in 2019 and $23,000 in 2020. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2019 $ 69,000 $ 115,000 $ 25,000 2020 81,000 135,000 37,500 2021 92,800 160,000 50,000 At December 31, 2021, Pitino owes Brey $16,000 for inventory acquired during the period. The following separate account balances are for these two companies for December 31, 2021, 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, 1/1/21 $ (488,000 ) $ (278,000 ) Net income (above) (230,000 ) (90,000 ) Dividends declared 136,000 27,000 Retained earnings, 12/31/21 $ (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, 12/31/21 (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, 2021?

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2019, 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 2019 and $80,000 in 2020. Brey declared dividends of $19,000 in 2019 and $23,000 in 2020. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2019 $ 69,000 $ 115,000 $ 25,000 2020 81,000 135,000 37,500 2021 92,800 160,000 50,000 At December 31, 2021, Pitino owes Brey $16,000 for inventory acquired during the period. The following separate account balances are for these two companies for December 31, 2021, 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, 1/1/21 $ (488,000 ) $ (278,000 ) Net income (above) (230,000 ) (90,000 ) Dividends declared 136,000 27,000 Retained earnings, 12/31/21 $ (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, 12/31/21 (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, 2021?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Brey reported net income from its own operations of $64,000 in 2019 and $80,000 in 2020. Brey declared dividends of $19,000 in 2019 and $23,000 in 2020.

Brey sells inventory to Pitino as follows:

Year	Cost to Brey	Transfer Price to Pitino	Inventory Remaining at Year-End (at transfer price)
2019	$	69,000		$	115,000	$	25,000
2020		81,000			135,000		37,500
2021		92,800			160,000		50,000

At December 31, 2021, Pitino owes Brey $16,000 for inventory acquired during the period.

The following separate account balances are for these two companies for December 31, 2021, 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, 1/1/21	$	(488,000	)	$	(278,000	)
Net income (above)		(230,000	)		(90,000	)
Dividends declared		136,000			27,000
Retained earnings, 12/31/21	$	(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, 12/31/21		(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, 2021?

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