Protrade Corporation acquired 80 percent of the outstanding voting stock of Seac

Question

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $440,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft's identifiable assets and liabilities at a collective net fair value of $615,000 and the fair value of the 20 percent noncontrolling interest was $110,000. 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:

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 $99,000 in 2017 and $119,000 in 2018. Of this inventory, Seacraft retained and then sold $37,000 of the 2017 transfers in 2018 and held $51,000 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 $59,000 in 2017 and $89,000 in 2018. Of this inventory, $30,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $44,000 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 $98,000, although its book value was only $59,000 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 2018:

a.Cost of goods sold: ?

Inventory: ?

Net income attributable to noncontrolling interest: ?

b.Cost of goods sold: ?

Inventory: ?

Net income attributable to noncontrolling interest: ?

c.Buildings (net): ?

Operating expenses: ?

Net income attributable to noncontrolling interest: ?

Protrade Seacraft Sales $ 730,000 $ 450,000 Cost of goods sold 335,000 242,000 Operating expenses 159,000 114,000 Retained earnings, 1/1/18 830,000 270,000 Inventory 355,000 119,000 Buildings (net) 367,000 166,000 Investment income Not given 0

Explanation / Answer

(a) COGS:-

Portrade COGS

335000

Seacraft COGS

242000

Elimination of 2015 Intra equity Transfer

(119000)

Recognition gross profit deferred in 2017 (2018 beginning inventory)

37000 transfer price / 1.6 = 23125 cost

37000 – 23125= 13875 intra equity gross profit

(13875)

Deferral of 2018 intra equity gross profit in ending inventory

51000 transfer price / 1.6 = 31875 cost

51000 – 31875 = 19125 intra equity gross profit

19125

463250

Inventory :-

Portrade Inventory

355000

Seacraft Inventory

119000

Deferral of 2018 intra equity gross profit in ending inventory

51000 transfer price / 1.6 = 31875 cost

51000 – 31875 = 19125 intra equity gross profit

(19125)

454875

Net Income Attributable to Non controlling Int :-

Seacraft sale

450000

Seacraft COGS

(242000)

Seacraft Operating Exp

(114000)

94000

Net Income Attributable to Non controlling Int (94000 * 20%)

18800

(b) COGS:-

Portrade COGS

335000

Seacraft COGS

242000

Elimination of 2018 Intra equity Transfer

(91000)

Recognition gross profit deferred in 2017 (2018 beginning inventory)

30000 transfer price / 1.6 = 18750 cost

30000 – 18750= 11250 intra equity gross profit

(11250)

Deferral of 2018 intra equity gross profit in ending inventory

44000 transfer price / 1.6 = 27500 cost

44000 – 27500 = 16500 intra equity gross profit

16500

491250

Inventory :-

Portrade Inventory

355000

Seacraft Inventory

119000

Deferral of 2018 intra equity gross profit in ending inventory

44000 transfer price / 1.6 = 27500 cost

44000 – 27500 = 16500 intra equity gross profit

(16500)

457500

Net Income Attributable to Non controlling Int :-

Seacraft sale

450000

Seacraft COGS

(242000)

Seacraft Operating Exp

(114000)

[(44000 – 30000)/1.6] * 0.6

(5250)

88750

Net Income Attributable to Non controlling Int (88750 * 20%)

17750

(c) Building :-

Portrade Building

367000

Seacraft Building

166000

(+) Depreciation on gain (98000 – 59000)/5

7800

(-) [98000 – 59000] - 7800

31200

509600

Operating Exp :-

Portrade Operating Exp

159000

Seacraft Operating Exp

114000

(-) Depreciation on gain

7800

265200

Portrade COGS

335000

Seacraft COGS

242000

Elimination of 2015 Intra equity Transfer

(119000)

Recognition gross profit deferred in 2017 (2018 beginning inventory)

37000 transfer price / 1.6 = 23125 cost

37000 – 23125= 13875 intra equity gross profit

(13875)

Deferral of 2018 intra equity gross profit in ending inventory

51000 transfer price / 1.6 = 31875 cost

51000 – 31875 = 19125 intra equity gross profit

19125

463250

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