ProForm acquired 80 percent of ClipRite on June 30, 2017, for $800,000 in cash.

Question

ProForm acquired 80 percent of ClipRite on June 30, 2017, for $800,000 in cash. Based on ClipRite's acquisition-date fair value, an unrecorded intangible of $500,000 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 $200,000 at the acquisition date. The 2018 financial statements are as follows: c1lipRite Proform $ (920,000) (840,000) Cost of goods sold Operating expenses Dividend income 595,000 220,000 460,000 160,000 (80,000) Net income (185,000) (220,000) $(1,600,000) (970,000) (185,000) 220,000 (220,000) Dividends declared 100,000 Retained earnings, 12/31/18 Cash and receivables $ (1,565,000) $(1,090,000) $ -_-4 p,000 -- 520,000 410,000 800,000 Investment in clipRite Fixed assets 1,100,000 1,200,000 Accumulated depreciation 200,000 350,000 2,630,000 2,090,000 Zotals Liabilities Common stock Retained earnings, 12/31/18 (465,000) (400,000) (600,000) (600,000) (1,090,000) S (2,630,000) $(2,090,000) Totals ClipRite sold ProForm inventory costing $81,000 during the last six months of 2017 for $210,000. At year-end, 30 percent remained. ClipRite sells ProForm inventory costing $260,000 during 2018 for $370,000. At year-end, 10 percent is left. With these facts, determine the consolidated balances for the following: Operating expenses 12/31/18

Explanation / Answer

I have fixed one number i.e of inventory. However question does not give information about 2017 profit which needs be included in the Non-controlling interest, as acquisition date is June 30, 2017.

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 370000 Retained earning(Profit in beginning inventory) 38700 =30%*(210000-81000) Intercompany cost of goods sold 260000 Cost of goods sold(Intercompany profit in cost of goods sold) 137700 Ending Inventory(profit in ending inventory) 11000 Calculation Beginning inventory 63000 =210000*30% Purchases 370000 Cost of goods available for sale 433000 Ending Inventory 37000 Cost of goods sold(COGS) 396000 Intercompany profit in COGS 137700 =90%*(370000-260000)+30%*(210000-81000) Intercompany profit in ending inventory 11000 =10%*(370000-260000) Requirement Proform Clipride Conolidation Consolidated Debit Credit Sales -920000 -840000 370000 -1390000 Cost of goods sold 595000 460000 397700 657300 Operating expenses 220000 160000 17000 397000 Dividend Income 80000 80000 0 Inventory 410000 820000 11000 1219000

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