Allister acquired 90 percent of Barone in January 2014. In allocating the newly

Question

     Allister acquired 90 percent of Barone in January 2014. In allocating the newly acquired subsidiary’s fair value at the acquisition date, Allister noted that Barone had developed a customer list worth $66,000 that was unrecorded on its accounting records and had a six-year remaining life. Any remaining excess fair value over Barone’s book value was attributed to goodwill. During 2015, Barone sells inventory costing $135,000 to Allister for $190,000. Of this amount, 20 percent remains unsold in Allister’s warehouse at year-end.

     Determine balances for the following items that would appear on Allister’s consolidated financial statements for 2015:

Explanation / Answer

Amount 1 Inventory $   8,89,000 2 Sales $ 18,10,000 3 Cost of Goods Sold $   8,21,000 4 Operating Expenses $   5,91,000 5 Net income attributable to Noncontrolling interest $         3,000 Workings: Customer List Amortization = $66,000 / 6 years = $                                                                    11,000 per year Intra entity Gross Profit = $1,90,000 - $1,35,000 = $                                                                    55,000 Inventory remaining at year end = 20% Unrealized Intra entity gross profit, 12/31 = $55,000 X 20% = $                                                                    11,000 1 Inventory = Add both the book values and subtract the unrealized intra entity gross profit = $5,50,000 + $3,50,000 - $11,000 = $                                                                8,89,000 2 Sales = Add both the book values and subtract intra entity transfer $1,90,000 = $11,00,000 + $9,00,000 - $1,90,000 = $                                                              18,10,000 3 Cost of Goods Sold = Add both the book values and subtract intra entity transfer $1,90,000 and add unrealized intra entity gross profit = $5,50,000 + $4,50,000 - $1,90,000 + $11,000 = $                                                                8,21,000 4 Operating Expenses = Add both the book values and amortization expense for the period = $2,55,000 + $3,25,000 + $11,000 = $                                                                5,91,000 5 Net income attributable to Noncontrolling interest = 20% of Barone's net income* $1,25,000 less eccess fair value amortization $11,000 and deferring $11,000 unrealized gross profit. (Gross profit is included in this computation because the transfer was upstream from Barone to Allister) = [($1,25,000 X 0.20) - $11,000 - $11,000] = $                                                                      3,000 Barone's net income* = $9,00,000 - $4,50,000 - $3,25,000 = $                                                                1,25,000

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.