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
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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:

  1. What was the annual amortization resulting from the acquisition-date fair-value allocations?
  2. Were the intra-entity transfers upstream or downstream?
  3. What intra-entity gross profit in inventory existed as of January 1, 2024?
  4. What intra-entity gross profit in inventory existed as of December 31, 2024?
  5. What amounts make up the $93,960 Equity in Earnings of Brey account balance for 2024?
  6. What is the net income attributable to the noncontrolling interest for 2024?
  7. What amounts make up the $572,400 Investment in Brey account balance as of December 31, 2024?
  8. Prepare the 2024 worksheet entry to eliminate the subsidiary’s beginning owners’ equity balances.
  9. Without preparing a worksheet or consolidation entries, determine the consolidation balances for these two companies.
  10.  
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