Protrade Corporation acquired 80 percent of the outstanding voting stock of Seac
ID: 2405249 • Letter: P
Question
Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $484,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $725,000 and the fair value of the 20 percent noncontrolling interest was $121,000. No excess fair value over book value amortization accompanied the acquisition The following selected account balances are from the individual financial records of these two companies as of December 31, 2018 Sales Cost of goods sold Operating expenses Retained earnings, 1/1/18 Inventory Buildings (net) Investment income Protrade Seacraft 840,000 560,000 390,000 297,000 170,000 125,000 940,000 380,000 366,000 130,000 378,000 177,000 Not given Each of the following problems is an independent situation a. Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $110,000 in 2017 and $130,000 in 2018. Of this inventory, Seacraft retained and then sold $48,000 of the 2017 transfers in 2018 and held $62,000 of the 2018 transfers until 2019 Determine balances for the following items that would appear on consolidated financial statements for 2018 b. Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $70,000 in 2017 and $100,000 in 2018. Of this inventory, $41,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $55,000 of the 2018 transfers were held until 2019 Determine balances for the following items that would appear on consolidated financial statements for 2018 c. Protrade sells Seacraft a building on January 1, 2017, for $120,000, although its book value was only $70,000 on this date. The building had a five-year remaining life and was to be depreciated using the straight-line method with no salvage value Determine balances for the following items that would appear on consolidated financial statements for 2018Explanation / Answer
a.
Cost of Goods Sold
562250
Inventory
472750
Net Income attributable to Non controlling Interest
27600
b.
Cost of Goods Sold
592250
Inventory
475375
Net Income attributable to Non controlling Interest
26550
c.
Building (net)
525000
Operating Exp
285000
Net Income attributable to Non controlling Interest
27600
(a) COGS:-
Portrade COGS
390000
Seacraft COGS
297000
Elimination of 2018 Intra equity Transfer
(130000)
Recognition gross profit deferred in 2017 (2018 beginning inventory)
48000 transfer price / 1.6 = 30000 cost
48000 – 30000 = 18000 intra equity gross profit
(18000)
Deferral of 2018 intra equity gross profit in ending inventory
62000 transfer price / 1.6 = 38750 cost
62000 – 38750 = 23250 intra equity gross profit
23250
562250
Inventory :-
Portrade Inventory
366000
Seacraft Inventory
130000
Deferral of 2018 intra equity gross profit in ending inventory
62000 transfer price / 1.6 = 38750 cost
62000 – 38750 = 23250 intra equity gross profit
(23250)
472750
Net Income Attributable to Non controlling Int :-
Seacraft sale
560000
Seacraft COGS
(297000)
Seacraft Operating Exp
(125000)
138000
Net Income Attributable to Non controlling Int (138000 * 20%)
27600
(b) COGS:-
Portrade COGS
390000
Seacraft COGS
297000
Elimination of 2018 Intra equity Transfer
(100000)
Recognition gross profit deferred in 2017 (2018 beginning inventory)
41000 transfer price / 1.6 = 25625 cost
41000 – 25625 = 15375 intra equity gross profit
(15375)
Deferral of 2018 intra equity gross profit in ending inventory
55000 transfer price / 1.6 = 34375 cost
55000 – 34375 = 20625 intra equity gross profit
20625
592250
Inventory :-
Portrade Inventory
366000
Seacraft Inventory
130000
Deferral of 2018 intra equity gross profit in ending inventory
55000 transfer price / 1.6 = 34375 cost
55000 – 34375 = 20625 intra equity gross profit
(20625)
475375
Net Income Attributable to Non controlling Int :-
Seacraft sale
560000
Seacraft COGS
(297000)
Seacraft Operating Exp
(125000)
[(55000 – 41000)/1.6] * 0.6
(5250)
132750
Net Income Attributable to Non controlling Int (132750 * 20%)
26550
(c) Building :-
Portrade Building
378000
Seacraft Building
177000
(+) Depreciation on gain (120000 – 70000)/5
10000
(-) [120000 – 70000] - 10000
40000
525000
Operating Exp :-
Portrade Operating Exp
170000
Seacraft Operating Exp
125000
(-) Depreciation on gain
10000
285000
a.
Cost of Goods Sold
562250
Inventory
472750
Net Income attributable to Non controlling Interest
27600
b.
Cost of Goods Sold
592250
Inventory
475375
Net Income attributable to Non controlling Interest
26550
c.
Building (net)
525000
Operating Exp
285000
Net Income attributable to Non controlling Interest
27600
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