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Homework answers / question archive / On January 1 2020 McDavid acquired a 60% interest in the common stock of Stacey Inc for 372000

On January 1 2020 McDavid acquired a 60% interest in the common stock of Stacey Inc for 372000

Accounting

On January 1 2020 McDavid acquired a 60% interest in the common stock of Stacey Inc for 372000. Stacey's book value on that date consisted of common stock of 100000 and retained earnings of 220000. Also, the acquisition date fair value of the 40% noncontrolling interest 248000. The subsidiary held patents(with a 10 year remaining life) that were undervalued within the company's accounting records by 70000 and an unrecorded customer list(15 year remaining life) assessed at 45000 fair value. Any remaining excess acquisition date fair value was assigned to goodwill. Since acquisition, McDavid has applied the equity method to it's Investment in Stacey account and no goodwill impairment has occurred. At year end, there are no intra entity payables or receivables.
The intra entity inventory sales between the two companies have been made as follows..
Year 2020 cost to McDavid..120000 Transfer price to stacey...150000 ending balance(at transfer price)...50000
Year 2021 cost to McDavid...112000
Transfer price to stacey...160000
Ending balance (at transfer price)...40000
MMcDavid defers 100% of its downstream intra entity profits in the year of the sale. The individual financial statements for these two companies has of December 31 2021 and the year then ended follow..
McDavid
Sales (700000)
Cost of goods sold 460000
Operating expenses 188000
Equity in earnings in stacey (28000)
Net income (80000)
Retained earnings, January 1 2021 (695000)
Ne income (80000)
Divends declared 45000
Retained earnings, December 31, 202q (730000)
Cash and receivables 248000
Inventory 233000
Investment in stacey 411000
Buildings(net) 308000
Equipment (net) 220000
Patents (net) 0
Total Assets 1420000
Liabilities (390000)
Common stock (300000)
Retained earnings December 31, 2021 (730000)
Total liabilities and stockholders equity (1420000)
Stacey
Sales (335000)
Cost of goods sold 205000
Operating expense 70000
Equity in earnings In stacey 0
Net income (60000)
Retained earnings, January 1, 2021 (280000)
Net income (60000)
Divendends declared 15000
Retained earnings December 31 2021 325000
Cash and receivables 148000
Inventory 129000
Investment in stacey 0
Buildings(net) 202000
Equipment (net) 86000
Patents (net) 20000
Total assets 585000
Liabilities (160000)
Common stock (100000)
Retained earnings December 31 2021 (325000)
Total liabilities and stockholders equity (585000)
A. show a schedule showing the acquisition date fair value allocations including the allocation to goodwill (if any). Also, determine any annual amortization for excess fair value assignments. Show your calculations.
B. Determine the gross profit held in ending inventory at December 31, 2020 and December 31, 2021. The gross profit represents the profit on intra entity sales that have not been sold to parties outside the consolidated entity. Show your calculations.
C. McDavid's investment in stacey balance is 411000 at the end of 2021. Show a reconciliation from the date of acquisition to December 31 2021 that explains this balance.
D. Prepare the worksheet journal entries that would be used to prepare the consolidated balance sheet as of December 31, 2021. Each journal entry should be labeled either by a letter or number to cross refer on the worksheet. Provide a short description for each journal entry.

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