Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2022, in exchange for $441,000 in cash. The subsidiary's stockholders' equity accounts totaled $425,000, and the noncontrolling interest had a fair value of $49,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $35,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life). Brey reported net income from its own operations of $75,000 in 2022 and $91,000 in 2023. Brey declared dividends of $24,500 in 2022 and $28,500 in 2023. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2022 $ 80,000 $ 170,000 $ 36,000 2023 114,000 190,000 48,500 2024 107,500 215,000 50,000 At December 31, 2024, Pitino owes Brey $27,000 for inventory acquired during the period. The separate account balances for the two companies at December 31, 2024, and the year then ended follow. Note: Parentheses indicate a credit balance. Items Pitino Brey Sales revenues $ (884,000) $ (421,000) Cost of goods sold 526,000 220,000 Expenses 186,500 80,000 Equity in earnings of Brey (93,960) 0 Net income $ (265,460) $ (121,000) Retained earnings, 1/1/24 $ (510,000) $ (300,000) Net income (above) (265,460) (121,000) Dividends declared 140,000 30,000 Retained earnings, 12/31/24 $ (635,460) $ (391,000) Cash and receivables $ 157,000 $ 109,000 Inventory 310,000 191,000 Investment in Brey 572,400 0 Land, buildings, and equipment (net) 975,000 339,000 Total assets $ 2,014,400 $ 639,000 Liabilities $ (808,940) $ (10,000) Common stock (570,000) (238,000) Retained earnings, 12/31/24 (635,460) (391,000) Total liabilities and equities $ (2,014,400) $ (639,000) Required: 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, 2024? What intra-entity gross profit in inventory existed as of December 31, 2024? What amounts make up the $93,960 Equity in Earnings of Brey account balance for 2024? What is the net income attributable to the noncontrolling interest for 2024? What amounts make up the $572,400 Investment in Brey account balance as of December 31, 2024? Prepare the 2024 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.

Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2022, in exchange for $441,000 in cash. The subsidiary's stockholders' equity accounts totaled $425,000, and the noncontrolling interest had a fair value of $49,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $35,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (four-year remaining life). Brey reported net income from its own operations of $75,000 in 2022 and $91,000 in 2023. Brey declared dividends of $24,500 in 2022 and $28,500 in 2023. Brey sells inventory to Pitino as follows: Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-End (at transfer price) 2022 $ 80,000 $ 170,000 $ 36,000 2023 114,000 190,000 48,500 2024 107,500 215,000 50,000 At December 31, 2024, Pitino owes Brey $27,000 for inventory acquired during the period. The separate account balances for the two companies at December 31, 2024, and the year then ended follow. Note: Parentheses indicate a credit balance. Items Pitino Brey Sales revenues $ (884,000) $ (421,000) Cost of goods sold 526,000 220,000 Expenses 186,500 80,000 Equity in earnings of Brey (93,960) 0 Net income $ (265,460) $ (121,000) Retained earnings, 1/1/24 $ (510,000) $ (300,000) Net income (above) (265,460) (121,000) Dividends declared 140,000 30,000 Retained earnings, 12/31/24 $ (635,460) $ (391,000) Cash and receivables $ 157,000 $ 109,000 Inventory 310,000 191,000 Investment in Brey 572,400 0 Land, buildings, and equipment (net) 975,000 339,000 Total assets $ 2,014,400 $ 639,000 Liabilities $ (808,940) $ (10,000) Common stock (570,000) (238,000) Retained earnings, 12/31/24 (635,460) (391,000) Total liabilities and equities $ (2,014,400) $ (639,000) Required: 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, 2024? What intra-entity gross profit in inventory existed as of December 31, 2024? What amounts make up the $93,960 Equity in Earnings of Brey account balance for 2024? What is the net income attributable to the noncontrolling interest for 2024? What amounts make up the $572,400 Investment in Brey account balance as of December 31, 2024? Prepare the 2024 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.

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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Year	Cost to Brey	Transfer Price to Pitino	Inventory Remaining at Year-End (at transfer price)
2022	$ 80,000	$ 170,000	$ 36,000
2023	114,000	190,000	48,500
2024	107,500	215,000	50,000

Items	Pitino	Brey
Sales revenues	$ (884,000)	$ (421,000)
Cost of goods sold	526,000	220,000
Expenses	186,500	80,000
Equity in earnings of Brey	(93,960)	0
Net income	$ (265,460)	$ (121,000)
Retained earnings, 1/1/24	$ (510,000)	$ (300,000)
Net income (above)	(265,460)	(121,000)
Dividends declared	140,000	30,000
Retained earnings, 12/31/24	$ (635,460)	$ (391,000)
Cash and receivables	$ 157,000	$ 109,000
Inventory	310,000	191,000
Investment in Brey	572,400	0
Land, buildings, and equipment (net)	975,000	339,000
Total assets	$ 2,014,400	$ 639,000
Liabilities	$ (808,940)	$ (10,000)
Common stock	(570,000)	(238,000)
Retained earnings, 12/31/24	(635,460)	(391,000)
Total liabilities and equities	$ (2,014,400)	$ (639,000)

Required:

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, 2024?
What intra-entity gross profit in inventory existed as of December 31, 2024?
What amounts make up the $93,960 Equity in Earnings of Brey account balance for 2024?
What is the net income attributable to the noncontrolling interest for 2024?
What amounts make up the $572,400 Investment in Brey account balance as of December 31, 2024?
Prepare the 2024 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.

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