question archive On January 1, 2020 McDavid Company (McDavid) acquired a 60% interest in the common stock of Stacey Inc
On January 1, 2020 McDavid Company (McDavid) acquired a 60% interest in the common stock of Stacey Inc
Subject:AccountingPrice: Bought3
On January 1, 2020 McDavid Company (McDavid) acquired a 60% interest in the common stock of Stacey Inc. (Stacey) for $372,000. Stacey's book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition date fair value of the 40% noncontrolling interest $248,000. The subsidiary held patents (with a 10 year remaining life) that were undervalued within the company's accounting records by $70,000 and an unrecorded customer list (15 year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill. Since acquisition, McDavid has applied the equity method to its "Investment in Stacey" account and no goodwill impairment has occurred. At year end, there are no intra-entity payables or receivables.
The intra-entity inventory sales between the two companies have been made as follows:
Year
Cost to McDavid
Transfer Price to Stacey
Ending Balance (at transfer price)
2020
$120,000
$150,000
$50,000
2021
$112,000
$160,000
$40,000
McDavid defers 100% of its downstream intra-entity profits in the year of the sale. The individual financial statements for these two companies as of December 31, 2021 and the year then ended follow:
McDavid
Stacey
Dr(Cr)
Dr(Cr)
Sales
$(700,000)
$(335,000)
Cost of goods sold
460,000
205,000
Operating expenses
188,000
70,000
Equity in earnings in Stacey
(28,000)
__________0
Net Income
$(80,000)
$(60,000)
Retained earnings, January 1, 2021
$(695,000)
$(280,000)
Net Income
(80,000)
(60,000)
Dividends declared
45,000
15,000
Retained earnings, December 31, 2021
$(730,000)
$325,000
Cash and receivables
$248,000
$148,000
Inventory
233,000
129,000
Investment in Stacey
411,000
0
Buildings (net)
308,000
202,000
Equipment (net)
220,000
86,000
Patents (net)
________0
20,000
Total Assets
$1,420,000
$585,000
Liabilities
$(390,000)
$(160,000)
Common stock
(300,000)
(100,000)
Retained earnings, December 31, 2021
(730,000)
(325,000)
Total liabilities and Stockholders' Equity
$(1,420,000)
$(585,000)
a. Show how to a schedule showing the acquisition date fair value allocations including the allocation to goodwill (if any). Also, determine any annual amortizations for excess fair value assignments. Show your calculations.
b. Determine the gross profit held in ending inventory at December 31, 2020 and December 31, 2021. The gross profit represents the profit on intra-entity sales that have not been sold to parties outside the consolidated entity. Show your calculations.
c. McDavid's "Investment in Stacey" balance is $411,000 at the end of 2021. show a reconciliation from the date of acquisition to December 31, 2021 that explains this balance.
d. Prepare the worksheet journal entries that would be used to prepare the consolidated balance sheet as of December 31, 2021. Each journal entry should be labelled either by a letter or number to cross reference on the worksheet. Provide a short description for each journal entry.
e. show a consolidated worksheet to determine appropriate balances for the consolidated balance sheet as of December 31, 2021. Be sure to cross reference each journal entry on the worksheet.
McDavid Stacey Consolidation Entries NCI Consolidated
Dr(Cr) Dr(Cr) Dr Cr Dr(Cr) Dr(Cr)
Sales (700,000) (335,000)
Cost of goods sold 460,000 205,000
Operating expenses 188,000 70,000
Equity in earnings of Stacey (28,000)
Separate company net income (80,000) (60,000) Consolidated net income
to noncontrolling interest
to McDavid
Retained earnings, 1/1 (695,000) (280,000)
Net income (above) (80,000) (60,000)
Dividends declared 45,000 15,000
Retained earnings, 12/31 (730,000) (325,000)
Cash and receivables 248,000 148,000
Inventory 233,000 129,000
Investment in Stacey 411,000 -0-
Buildings (net) 308,000 202,000
Equipment (net) 220,000 86,000
Patents (net) -0- 20,000
Customer list
Goodwill
Total assets 1,420,000 585,000
Liabilities (390,000) (160,000)
Common stock (300,000) (100,000)
Noncontrolling interest 1/1
Noncontrolling interest 12/31
Retained earnings, 12/31 (730,000) (325,000)
Total liabilities and equities (1,420,000) (585,000)
