Protrade Corporation acquired 80 percent of the outstanding voting stock of Seac

Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $448,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $635,000 and the fair value of the 20 percent noncontrolling interest was $112,000. No excess fair value over book value amortization accompanied the acquisition. The following selected account balances are from the individual financial records of these two companies as of December 31, 2015:

Each of the following problems is an independent situation:

a. Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $101,000 in 2014 and $121,000 in 2015. Of this inventory, Seacraft retained and then sold $39,000 of the 2014 transfers in 2015 and held $53,000 of the 2015 transfers until 2016. Determine balances for the following items that would appear on consolidated financial statements for 2015:

b. Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $61,000 in 2014 and $91,000 in 2015. Of this inventory, $32,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $46,000 of the 2015 transfers were held until 2016. Determine balances for the following items that would appear on consolidated financial statements for 2015:

c. Protrade sells Seacraft a building on January 1, 2014, for $102,000, although its book value was only $61,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value. Determine balances for the following items that would appear on consolidated financial statements for 2015:

Protrade Seacraft Sales 750,000 470,000 Cost of goods sold 345,000 252,000 Operating expenses 161,000 116,000 Retained earnings 1/1/15 850,000 290,000 Inventory 357,000 121,000 Buildings (net) 369,000 168,000 Investment income not given 0

Explanation / Answer

(a) COGS:-

Portrade COGS

345000

Seacraft COGS

252000

Elimination of 2015 Intra equity Transfer

(121000)

Recognition gross profit deferred in 2014 (2015 beginning inventory)

39000 transfer price / 1.6 = 24375 cost

39000 – 24375= 14625 intra equity gross profit

(14625)

Deferral of 2018 intra equity gross profit in ending inventory

53000 transfer price / 1.6 = 33125 cost

53000 – 33125 = 19875 intra equity gross profit

19875

481250

Inventory :-

Portrade Inventory

357000

Seacraft Inventory

121000

Deferral of 2018 intra equity gross profit in ending inventory

53000 transfer price / 1.6 = 33125 cost

53000 – 33125 = 19875 intra equity gross profit

(19875)

458125

Net Income Attributable to Non controlling Int :-

Seacraft sale

470000

Seacraft COGS

(252000)

Seacraft Operating Exp

(116000)

102000

Net Income Attributable to Non controlling Int (102000 * 20%)

20400

(b) COGS:-

Portrade COGS

345000

Seacraft COGS

252000

Elimination of 2015 Intra equity Transfer

(91000)

Recognition gross profit deferred in 2014 (2015 beginning inventory)

32000 transfer price / 1.6 = 20000 cost

32000 – 20000= 12000 intra equity gross profit

(12000)

Deferral of 2015 intra equity gross profit in ending inventory

46000 transfer price / 1.6 = 28750 cost

46000 – 28750 = 17250 intra equity gross profit

17250

511250

Inventory :-

Portrade Inventory

357000

Seacraft Inventory

121000

Deferral of 2015 intra equity gross profit in ending inventory

46000 transfer price / 1.6 = 28750 cost

46000 – 28750 = 17250 intra equity gross profit

(17250)

460750

Net Income Attributable to Non controlling Int :-

Seacraft sale

470000

Seacraft COGS

(252000)

Seacraft Operating Exp

(116000)

[(46000 – 32000)/1.6] * 0.6

(5250)

96750

Net Income Attributable to Non controlling Int (96750 * 20%)

19350

(c) Building :-

Portrade Building

369000

Seacraft Building

168000

(+) Depreciation on gain (102000 – 61000)/5

8200

(-) [102000 – 61000] - 8200

32800

512400

Operating Exp :-

Portrade Operating Exp

161000

Seacraft Operating Exp

116000

(-) Depreciation on gain

8200

268800

Portrade COGS

345000

Seacraft COGS

252000

Elimination of 2015 Intra equity Transfer

(121000)

Recognition gross profit deferred in 2014 (2015 beginning inventory)

39000 transfer price / 1.6 = 24375 cost

39000 – 24375= 14625 intra equity gross profit

(14625)

Deferral of 2018 intra equity gross profit in ending inventory

53000 transfer price / 1.6 = 33125 cost

53000 – 33125 = 19875 intra equity gross profit

19875

481250

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