Help Save&Exit Submit Check my work Pitino acquired 90 percent of Brey\'s outsta
ID: 2342024 • Letter: H
Question
Help Save&Exit Submit Check my work Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $486,000 in cash. The subsidiary's stockholders' equity accounts totaled $470,000 and the noncontrolling interest had a fair value of $54,000 on that day. Howevera building (with a ten-year remaining life) in Brey's accounting records was undervalued by $45,000. 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 $80,000 in 2016 and $96,000 in 2017 Brey declared dividends of $27000 in 2016 and $31,000 in 2017 Inventory Remaining at Transfer Price Year-End (at Year 2016 2017 2018 to Brey to Pitino 85,000 195,000 215,000 240,000 transfer price) 41,000 53,000 40,000 118,250 156,000 At December 31, 2018, Pitino owes Brey $32,000 for inventory acquired during the period. The following separate account balances are for these two companies for December 31, 2018, and the year then ended Note: Parentheses indicate a credit balance. Pitino Brey $ (894,000) $ (446,000) Sales revenues Cost of goods sold Expenses Equity in earnings of Brey 225,000 90,000 531,000 187,000 (117,090) $ (293,090) $(131,000) (520,000) (310,000) (293,090) (31,000) Net income Retained earnings, 1/1/18 Net income (above) Dividends denlared 145.000 52.000Explanation / Answer
(a)
Annual Amortization
Equity amount
$ 470,000.00
Non-controlling Interest
$ 54,000.00
TOTAL VALUE
$ 524,000.00
Pitino acquired 90%
$ 471,600.00
Acquisition value
$ 486,000.00
Brey's technology value
$ 14,400.00
Amortization per year
$ 3,600.00
(b)
Transaction is Downstream because Brey sell goods to Pitino
(C)
In 2017, Brey transfer Inventory cost
$ 118,250.00
Transferred amount
$ 215,000.00
Gross profit
$ 96,750.00
(d)
In 2018, Brey transfer Inventory cost
$ 156,000.00
Transferred amount
$ 240,000.00
Gross profit
$ 84,000.00
(e)
Equity earnings of Brey for 2018
$ 117,090.00
if Brey equity earning is 117090 then net income would be
$ 13,910.00
if Brey equity earning is 131000 then net income would be
$ -
117090131000 then net sales would be
$ 563,090.00
(f)
Net income attributable for non-controlling interest
Fair Value
$ 54,000.00
Less:
90% of declared dividend
$ 46,800.00
Net Income
$ 7,200.00
(g)
Investment in Brey
$ 621,675.00
90% Equity
$ 423,000.00
Dividend
$ 46,800.00
Inventory transferred profit
$ 151,875.00
Total investment savings
$ 621,675.00
(h)
Dr.
Common stock of the subsidiary
$ 423,000.00
Dr.
Retained earnings of the subsidiary
$ 102,600.00
Dr.
Goodwill
$ 14,400.00
Cr.
Investment in subsidiary
$ 486,000.00
Cr.
Non-Controlling Interest
$ 54,000.00
(i)
Consolidated Balances for 2018
Sales Revenue
$ -1,340,000.00
Cost of good sales
$ 756,000.00
Expenses
$ 277,000.00
Investment in subsidiary
$ -117,090.00
Net Income
$ -424,090.00
Retained earnings
$ -830,000.00
Net Income
$ -424,090.00
Dividend declared
$ 197,000.00
RETAINED EARNINGS
$ -1,057,090.00
Cash receivables
$ 276,000.00
Inventory
$ 551,000.00
Investments
$ 621,675.00
Land & building
$ 1,324,000.00
TOTAL ASSETS
$ 2,772,675.00
Liabilities
$ -842,585.00
Common Stock
$ -873,000.00
Retained earnings
$ -1,057,090.00
Total Liabilities & equity
$ -2,772,675.00
(a)
Annual Amortization
Equity amount
$ 470,000.00
Non-controlling Interest
$ 54,000.00
TOTAL VALUE
$ 524,000.00
Pitino acquired 90%
$ 471,600.00
Acquisition value
$ 486,000.00
Brey's technology value
$ 14,400.00
Amortization per year
$ 3,600.00
(b)
Transaction is Downstream because Brey sell goods to Pitino
(C)
In 2017, Brey transfer Inventory cost
$ 118,250.00
Transferred amount
$ 215,000.00
Gross profit
$ 96,750.00
(d)
In 2018, Brey transfer Inventory cost
$ 156,000.00
Transferred amount
$ 240,000.00
Gross profit
$ 84,000.00
(e)
Equity earnings of Brey for 2018
$ 117,090.00
if Brey equity earning is 117090 then net income would be
$ 13,910.00
if Brey equity earning is 131000 then net income would be
$ -
117090131000 then net sales would be
$ 563,090.00
(f)
Net income attributable for non-controlling interest
Fair Value
$ 54,000.00
Less:
90% of declared dividend
$ 46,800.00
Net Income
$ 7,200.00
(g)
Investment in Brey
$ 621,675.00
90% Equity
$ 423,000.00
Dividend
$ 46,800.00
Inventory transferred profit
$ 151,875.00
Total investment savings
$ 621,675.00
(h)
Dr.
Common stock of the subsidiary
$ 423,000.00
Dr.
Retained earnings of the subsidiary
$ 102,600.00
Dr.
Goodwill
$ 14,400.00
Cr.
Investment in subsidiary
$ 486,000.00
Cr.
Non-Controlling Interest
$ 54,000.00
(i)
Consolidated Balances for 2018
Sales Revenue
$ -1,340,000.00
Cost of good sales
$ 756,000.00
Expenses
$ 277,000.00
Investment in subsidiary
$ -117,090.00
Net Income
$ -424,090.00
Retained earnings
$ -830,000.00
Net Income
$ -424,090.00
Dividend declared
$ 197,000.00
RETAINED EARNINGS
$ -1,057,090.00
Cash receivables
$ 276,000.00
Inventory
$ 551,000.00
Investments
$ 621,675.00
Land & building
$ 1,324,000.00
TOTAL ASSETS
$ 2,772,675.00
Liabilities
$ -842,585.00
Common Stock
$ -873,000.00
Retained earnings
$ -1,057,090.00
Total Liabilities & equity
$ -2,772,675.00
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