On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $391,800. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,600. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $85,600 and an unrecorded customer list (15-year remaining life) assessed at a $61,800 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 $137,100 $171,375 $57,125 2021 113,400 151,200 37,800 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (755,000 ) $ (395,000 ) Cost of goods sold 496,200 241,000 Operating expenses 201,455 82,000 Equity in earnings in Stinson (37,567 ) 0 Net income $ (94,912 ) $ (72,000 ) Retained earnings, 1/1/21 $ (824,900 ) $ (285,700 ) Net income (94,912 ) (72,000 ) Dividends declared 50,800 20,800 Retained earnings, 12/31/21 $ (869,012 ) $ (336,900 ) Cash and receivables $ 295,500 $ 153,400 Inventory 277,600 133,600 Investment in Stinson 430,314 0 Buildings (net) 364,000 208,000 Equipment (net) 259,700 91,500 Patents (net) 0 26,400 Total assets $ 1,627,114 $ 612,900 Liabilities $ (458,102 ) $ (176,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (869,012 ) (336,900 ) Total liabilities and equities $ (1,627,114 ) $ (612,900 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $430,314 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 $391,800. Stinson's book value on that date consisted of common stock of $100,000 and retained earnings of $231,600. Also, the acquisition-date fair value of the 40 percent noncontrolling interest was $261,200. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company's accounting records by $85,600 and an unrecorded customer list (15-year remaining life) assessed at a $61,800 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 $137,100 $171,375 $57,125 2021 113,400 151,200 37,800 The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow: McIlroy, Inc. Stinson, Inc. Sales $ (755,000 ) $ (395,000 ) Cost of goods sold 496,200 241,000 Operating expenses 201,455 82,000 Equity in earnings in Stinson (37,567 ) 0 Net income $ (94,912 ) $ (72,000 ) Retained earnings, 1/1/21 $ (824,900 ) $ (285,700 ) Net income (94,912 ) (72,000 ) Dividends declared 50,800 20,800 Retained earnings, 12/31/21 $ (869,012 ) $ (336,900 ) Cash and receivables $ 295,500 $ 153,400 Inventory 277,600 133,600 Investment in Stinson 430,314 0 Buildings (net) 364,000 208,000 Equipment (net) 259,700 91,500 Patents (net) 0 26,400 Total assets $ 1,627,114 $ 612,900 Liabilities $ (458,102 ) $ (176,000 ) Common stock (300,000 ) (100,000 ) Retained earnings, 12/31/21 (869,012 ) (336,900 ) Total liabilities and equities $ (1,627,114 ) $ (612,900 ) (Note: Parentheses indicate a credit balance.) Show how McIlroy determined the $430,314 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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Question

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	$137,100	$171,375	$57,125
2021	113,400	151,200	37,800

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

	McIlroy, Inc.		Stinson, Inc.
Sales	$	(755,000	)	$	(395,000	)
Cost of goods sold		496,200			241,000
Operating expenses		201,455			82,000
Equity in earnings in Stinson		(37,567	)		0
Net income	$	(94,912	)	$	(72,000	)
Retained earnings, 1/1/21	$	(824,900	)	$	(285,700	)
Net income		(94,912	)		(72,000	)
Dividends declared		50,800			20,800
Retained earnings, 12/31/21	$	(869,012	)	$	(336,900	)
Cash and receivables	$	295,500		$	153,400
Inventory		277,600			133,600
Investment in Stinson		430,314			0
Buildings (net)		364,000			208,000
Equipment (net)		259,700			91,500
Patents (net)		0			26,400
Total assets	$	1,627,114		$	612,900
Liabilities	$	(458,102	)	$	(176,000	)
Common stock		(300,000	)		(100,000	)
Retained earnings, 12/31/21		(869,012	)		(336,900	)
Total liabilities and equities	$	(1,627,114	)	$	(612,900	)

(Note: Parentheses indicate a credit balance.)

Show how McIlroy determined the $430,314 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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