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:

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

We need to pass the following journl entry as workpaper elimination for incompany goods transacion in 2018 Amount in $ Date Account Title and Explanation Debit Credit December 31, 2018 Intercompany sales 320000 Retained earning(Profit in beginning inventory) 25200 =30%*(160000-76000) Intercompany cost of goods sold 235000 Cost of goods sold(Intercompany profit in cost of goods sold) 101700 =90%*(320000-235000)+30%*(160000-76000) Ending Inventory(profit in ending inventory) 8500 =90%*(320000-235000) Calculation Beginning inventory 48000 =160000*30% Purchases 320000 Cost of goods available for sale 368000 Ending Inventory 32000 Cost of goods sold(COGS) 336000 Intercompany profit in COGS 101700 =90%*(320000-235000)+30%*(160000-76000) Intercompany profit in ending inventory 8500 =10%*(320000-235000) Requirement Proform Clipride Conolidation Consolidated Debit Credit Sales -870000 -740000 320000 -1290000 Cost of goods sold 570000 435000 336700 668300 Operating expenses 170000 135000 17000 322000 Dividend Income 30000 30000 0 Inventory 360000 770000 8500 1121500

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