Business, 03.03.2020 01:28, dameiranderson
Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $378,000 in cash. The subsidiary's stockholders' equity accounts totaled $362,000 and the noncontrolling interest had a fair value of $42,000 on that day. However, a building (with a ten-year remaining life) in Brey's accounting records was undervalued by $21,000. Pitino assigned the rest of the excess fair value over book value to Brey's patented technology (five-year remaining life).
Brey reported net income from its own operations of $68,000 in 2016 and $84,000 in 2017. Brey declared dividends of $21,000 in 2016 and $25,000 in 2017.
Year Cost to Brey Transfer Price to Pitino Inventory Remaining at Year-
End (at transfer price)
2016 $73,000 $135,000 $29,000
2017 93,000 155,000 41,500
2018 108,000 180,000 55,000
At December 31, 2018, Pitino owes Brey $20,000 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
Sales revenues $(870,000) $(386,000)
Cost of goods sold 519,000 213,000
Expenses 185,800 66,000
Equity in earnings of Brey (82,890) 0
Net income $(248,090) $(107,000)
Retained earnings, 1/1/18 $(496,000) $(286,000)
Net income (above) (248,090) (107,000)
Dividends declared 133,000 23,000
Retained earnings, 12/31/18 $(611,090) $(370,000)
Cash and receivables $150,000 $102,000
Inventory 275,000 156,000
Investment in Brey 503,550 0
Land, buildings, and-
equipment (net) 968,000 332,000
Total assets $1,896,550 $590,000
Liabilities $(750,46) $(38,000)
Common stock (535,000) (182,000)
Retained earnings, 12/31/18 (611,09) (370,000)
Total liabilities and equity $(1,896,550) $(590,000)
(a) What was the annual amortization resulting from the acquisition-date fair-value allocations?
(b) Were the intra-entity transfers upstream or downstream?
(c) What intra-entity gross profit in inventory existed as of January 1, 2018?
(d) What intra-entity gross profit in inventory existed as of December 31, 2018?
Answers: 2
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Pitino acquired 90 percent of Brey's outstanding shares on January 1, 2016, in exchange for $378,000...
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