Protrade Corporation acquired 80 percent of the outstanding voting stock of Seac
ID: 2430781 • Letter: P
Question
Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $416,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $555,000 and the fair value of the 20 percent noncontrolling interest was $104,000. 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, 2015:
Each of the following problems is an independent situation:
Assume that Protrade sells Seacraft inventory at a markup equal to 60 percent of cost. Intra-entity transfers were $93,000 in 2014 and $113,000 in 2015. Of this inventory, Seacraft retained and then sold $31,000 of the 2014 transfers in 2015 and held $45,000 of the 2015 transfers until 2016.
Determine balances for the following items that would appear on consolidated financial
statements for 2015:
costs of goods sold
inventory
net income attributable to noncontrolling interest
Assume that Seacraft sells inventory to Protrade at a markup equal to 60 percent of cost. Intra-entity transfers were $53,000 in 2014 and $83,000 in 2015. Of this inventory, $24,000 of the 2014 transfers were retained and then sold by Protrade in 2015, whereas $38,000 of the 2015 transfers were held until 2016.
Determine balances for the following items that would appear on consolidated financial statements for 2015:
costs of goods sold
inventory
net income attributable to noncontrolling interest
Protrade sells Seacraft a building on January 1, 2014, for $86,000, although its book value was only $53,000 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 2015:
buildings (net)
operating expenses
costs of goods sold
inventory
net income attributable to noncontrolling interest
Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2014, for $416,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft’s identifiable assets and liabilities at a collective net fair value of $555,000 and the fair value of the 20 percent noncontrolling interest was $104,000. No excess fair value over book value amortization accompanied the acquisition.
Explanation / Answer
Part A
Consolidated Cost of Goods Sold
Protrade’s cost of goods sold............... ......... $305,000
Seacraft’s cost of goods sold.............................. 212,000
Elimination of 2015 intra-entity transfers........... (113,000)
Realized gross profit deferred in 2014 (2015 beginning inventory)
$31,000 transfer price ÷ 1.6 = $19375 cost
$31000– $19375 = $11625 unrealized gross profit.... (11625)
Deferral of 2015 unrealized gross profit in ending inventory:
$45,000 transfer price ÷ 1.6 = $28125 cost
$45000 – $28125 = $16875 unrealized gross profit.... 16875
Consolidated cost of goods sold ................................$409250
Consolidated Inventory
Protrade book value.................................. $349,000
Seacraft book value..................................... 113,000
Defer ending unrealized gross profit ............(16875)
Consolidated Inventory................................... $445,125
Net income attributable to noncontrolling interest:
Because all intra-entity sales were downstream, the deferrals do not affect Seacraft. Thus, the noncontrolling interest share is 20% of the $70000 (390000-212000-108000) reported net income (revenues minus cost of goods sold and expenses) or $14,000
Part B
Consolidated Cost of Goods Sold
Protrade book value................................. ............ $305,000
Seacraft book value.................................... ............212,000
Elimination of 2015 intra-entity transfers.............. (83,000)
Realized gross profit deferred in 2014(2015 beginning inventory)
$24,000 transfer price ÷ 1.6 = $15000 cost
$24,000 – $15,000 = $9,000 unrealized gross profit.......(9,000)
Deferral of 2015 unrealized gross profit in ending inventory:
$38,000 transfer price ÷ 1.6 = $23750 cost
$38000– $23750 = $14250 unrealized gross profit........14250
Consolidated cost of goods sold.............................. $439,250
Consolidated inventory
Protrade book value................................... $349000
Seacraft book value.................................... 144,000
Defer ending unrealized gross profit............(14250)
Consolidated inventory................................ $447,750
Net income attributable to noncontrolling interest
Since all intra-entity sales are upstream, the effect on Seacraft's net income must be reflected in the noncontrolling interest computation:
Seacraft reported net income..........................................70,000
2014 unrealized gross profit realized in 2015........... .. .. 9000
Unrealized gross profit current year.............................. (14250)
Net reported income.......................................................64750
Noncontrolling interest share.......................................... 20%
Net income attributable to Noncontrolling interest........ 12950
Part C
Calculating protade's gain = 86000-53000 =33000
Protade's depreciation = 53000/5 = 10600
Seacraft's depreciation = 86000/5 =17200
Excess depreciation = 17200-10600 = 6600
Protade's book value......................361000
Seacraft's book value .................... 160000
Gain.................................................. (33000)
Excess depreciation (2 years) .........13200
Building.............................................501,200
Operating expenses
Protade's book value......................... 153000
Seacraft's book value.......................... 108000
Annual excess depreciation................(6600)
Operating expenses............................. 254,400
Net income reported = 70000
Noncontrolling interest share = 20%
Net income attributable to Noncontrolling interest = 14000
Cost of goods sold 409250 Inventory 445125 Net income attributable to Noncontrolling interest 14000Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.