Moore purchased 90 percent of Kirby on January 1, 2014, for $657,000 in cash. On

Question

Moore purchased 90 percent of Kirby on January 1, 2014, for $657,000 in cash. On that date, the 10 percent noncontrolling interest was assessed to have a $73,000 fair value. Also at the acquisition date, Kirby held equipment (4-year remaining life) undervalued on the financial records by $20,000 and interest-bearing liabilities (5-year remaining life) overvalued by $40,000. The rest of the excess fair value over book value was assigned to previously unrecognized brand names and amortized over a 10-year life.

Each year Kirby sells Moore inventory at a 20 percent gross profit t rate. Intra-entity sales were $145,000 in 2014 and $160,000 in 2015. On January 1, 2015, 30 percent of the 2014 transfers were still on hand and, on December 31, 2015, 40 percent of the 2015 transfers remained.

Moore sold Kirby a building on January 2, 2014. It had cost Moore $100,000 but had $90,000 in accumulated depreciation at the time of this transfer. The price was $25,000 in cash. At that time, the building had a five-year remaining life.

Sales:

Cost of goods sold:

Operating and interest expenses:

Noncontrolling interest in consolidated net income:

consolidated net income:

Consolidated net income to controlling interest:

Retained earnings 1/1/15

dividends declared

retained earnings 12/31/15

cash and receivables

inventory

investment in kirby

equipment (net)

buildings

accumulated depreciation

other assets

brand names

total assets

liabilities

NCI

common stock

retained earnings 12/31/15

Total Liabilities and equity

Explanation / Answer

Moore Kirby   Sales $ (800,000 ) $ (600,000 )   Cost of goods sold 500,000 400,000       Operating and interest expenses 100,000 160,000           Net income $ (200,000 ) $ (40,000 )   Retained earnings, 1/1/15 $ (990,000 ) $ (550,000 )   Net income (200,000 ) (40,000 )   Dividends declared 130,000 0           Retained earnings, 12/31/15 $ (1,060,000 ) $ (590,000 )   Cash and receivables $ 217,000 $ 180,000   Inventory 224,000 160,000   Investment in Kirby 657,000 0   Equipment (net) 600,000 420,000   Buildings 1,000,000 650,000   Accumulated depreciation—buildings (100,000 ) (200,000 )   Other assets 200,000 100,000        Total assets $ 2,798,000 $ 1,310,000   Liabilities $ (1,138,000 ) $ (570,000 )   Common stock (600,000 ) (150,000 )   Retained earnings, 12/31/15 (1,060,000 ) (590,000 )        Total liabilities and equity $ (2,798,000 ) $ (1,310,000 )

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