ProForm acquired 60 percent of ClipRite on June 30, 2017, for $960,000 in cash.

Question

ProForm acquired 60 percent of ClipRite on June 30, 2017, for $960,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $700,000 was recognized and is being amortized at the rate of $17,000 per year. No goodwill was recognized in the acquisition. The noncontrolling interest fair value was assessed at $640,000 at the acquisition date. The 2018 financial statements are as follows:

ClipRite sold ProForm inventory costing $76,000 during the last six months of 2017 for $160,000. At year-end, 30 percent remained. ClipRite sells ProForm inventory costing $235,000 during 2018 for $320,000. At year-end, 10 percent is left. With these facts, determine the consolidated balances for the following:

Noncontrolling Interest in Sub 12-31-18:

ProForm ClipRite Sales $ (870,000 ) $ (740,000 ) Cost of goods sold 570,000 435,000 Operating expenses 170,000 135,000 Dividend income (30,000 ) 0 Net income $ (160,000 ) $ (170,000 ) Retained earnings, 1/1/18 $ (1,600,000 ) $ (920,000 ) Net income (160,000 ) (170,000 ) Dividends declared 170,000 50,000 Retained earnings, 12/31/18 $ (1,590,000 ) $ (1,040,000 ) Cash and receivables $ 470,000 $ 370,000 Inventory 360,000 770,000 Investment in ClipRite 960,000 0 Fixed assets 1,700,000 950,000 Accumulated depreciation (300,000 ) (100,000 ) Totals $ 3,190,000 $ 1,990,000 Liabilities $ (800,000 ) $ (150,000 ) Common stock (800,000 ) (800,000 ) Retained earnings, 12/31/18 (1,590,000 ) (1,040,000 ) Totals $ (3,190,000 ) $ (1,990,000 )

Explanation / Answer

Computation of Non Controlling Interest in Subsidary Particular Amount Beginning Book Value $705,920 Excess Intangible Allocation $276,600 NCI In Subsidary income $67,880 Dividend -$20,000 Total NCI $1,030,400 Working Note:- Unrealised Gross Profit2017= ( Sales-Cost of Inventory) X % left Inventory =($160000-$76000)X30%=$25200 Unrealised Gross Profit2018= ( Sales-Cost of Inventory) X % left Inventory =($320000-$235000)X10%=$8500 Computation of NCI in Subsidary income Reported Subsidary income 2017 $170,000 Intangible Amortisation -$17,000 2017 Gross Profit Recognized $25,200 2018 Gross profit deferred -$8,500 Subsidary Realized Income 2013 $169,700 NCI Percentage 40% NCI Subsidary income $67,880 Computation of share of NCI in Subsidary's Book Value Asset $1,990,000 less : Liabilities -$150,000 Dividend Paid -$50,000 2017Unrealised Gross Profit -$25,200 Total Book Value $1,764,800 NCI Share 40% Book Value's NCI $705,920 Computation of excess Intangible Allocation Intangibe=($700000-($17000X1/2))X40%=$276600

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