On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy 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: Year Cost to McIlroy Transfer Price to Stinson Ending Balance (at transfer price) 2020 $120,000 $150,000 $50,000 2021 112,000 160,000 40,000 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (700,000 ) $ (335,000 ) Cost of goods sold 460,000 205,000 Operating expenses 188,000 70,000 Equity in earnings in Stinson (28,000 ) 0 Net income $ (80,000 ) $ (60,000 ) Retained earnings, 1/1/21 $ (695,000 ) $ (280,000 ) Net income (80,000 ) (60,000 ) Dividends declared 45,000 15,000 Retained earnings, 12/31/21 $ (730,000 ) $ (325,000 ) Cash and receivables $ 248,000 $ 148,000 Inventory 233,000 129,000 Investment in Stinson 411,000 0 Buildings (net) 308,000 202,000 Equipment (net) 220,000 86,000 Patents (net) 0 20,000 Total assets $ 1,420,000 $ 585,000 Liabilities $ (390,000 ) $ (160,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (730,000 ) (325,000 ) Total liabilities and equities $ (1,420,000 ) $ (585,000 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy 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: Year Cost to McIlroy Transfer Price to Stinson Ending Balance (at transfer price) 2020 $120,000 $150,000 $50,000 2021 112,000 160,000 40,000 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (700,000 ) $ (335,000 ) Cost of goods sold 460,000 205,000 Operating expenses 188,000 70,000 Equity in earnings in Stinson (28,000 ) 0 Net income $ (80,000 ) $ (60,000 ) Retained earnings, 1/1/21 $ (695,000 ) $ (280,000 ) Net income (80,000 ) (60,000 ) Dividends declared 45,000 15,000 Retained earnings, 12/31/21 $ (730,000 ) $ (325,000 ) Cash and receivables $ 248,000 $ 148,000 Inventory 233,000 129,000 Investment in Stinson 411,000 0 Buildings (net) 308,000 202,000 Equipment (net) 220,000 86,000 Patents (net) 0 20,000 Total assets $ 1,420,000 $ 585,000 Liabilities $ (390,000 ) $ (160,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (730,000 ) (325,000 ) Total liabilities and equities $ (1,420,000 ) $ (585,000 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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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	$120,000	$150,000	$50,000
2021	112,000	160,000	40,000

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

	McIlroy, Inc.		Stinson, Inc.
Sales	$	(700,000	)	$	(335,000	)
Cost of goods sold		460,000			205,000
Operating expenses		188,000			70,000
Equity in earnings in Stinson		(28,000	)		0
Net income	$	(80,000	)	$	(60,000	)
Retained earnings, 1/1/21	$	(695,000	)	$	(280,000	)
Net income		(80,000	)		(60,000	)
Dividends declared		45,000			15,000
Retained earnings, 12/31/21	$	(730,000	)	$	(325,000	)
Cash and receivables	$	248,000		$	148,000
Inventory		233,000			129,000
Investment in Stinson		411,000			0
Buildings (net)		308,000			202,000
Equipment (net)		220,000			86,000
Patents (net)		0			20,000
Total assets	$	1,420,000		$	585,000
Liabilities	$	(390,000	)	$	(160,000	)
Common stock		(300,000	)		(100,000	)
Retained earnings, 12/31/21		(730,000	)		(325,000	)
Total liabilities and equities	$	(1,420,000	)	$	(585,000	)

(Note: Parentheses indicate a credit balance.)

Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.
Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.

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