Student Name: MEGAN REED

Class:ACCT610 I001 Spr 15

Problem 5-27

Requirement:
a. For consolidation purposes, does the direction of the transfers (upstream or downstr
the balances to be reported here?
The noncontrolling interest is no longer computed since Akron controls all the outstanding stock
of Toledo. Thus, the direction of the transfers do not affect the consolidated amounts of the
business combination.
b. Prepare a consolidated income statement for the year ending December 31, 2011.
Worksheet Entries:
a.

Retained Earnings (beginning 1/1/2012)

Cost of Goods Sold

17,500.00

b.

Amortization Expense (2013)

Patented technology

15,000.00

c.

Sales (2013)
Cost of Goods Sold

d.

Cost of Goods Sold

Inventory

320,000.00

12,500.00

Consolidated Income Statement:

Akron, Inc. and Subsidiary

Consolidated Income Statement

For the Year Ended 12/31/2013
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Consolidated Net Income

1 Spr 15

nsfers (upstream or downstream) affect

controls all the outstanding stock

consolidated amounts of the

nding December 31, 2011.

Computations:
Gross Profit

=
=
=

17,500.00
Gross Profit
Gross Profit Rate

=
=
=

Gross Profit Rate

Unrealized Gross Profit
(2012)
Unrealized Gross Profit
(2012)

=
=
=

15,000.00

320,000.00
Gross Profit

=
=
=

12,500.00
Gross Profit
Gross Profit Rate

=
=
=

Gross Profit Rate

Unrealized Gross Profit
(2013)
Unrealized Gross Profit
(2013)

=
=
=

1,380,000.00
575,000.00
805,000.00
635,000.00
170,000.00

Sales:

= 1100000+600000-320000
1,380,000
Cost of Goods Sold
= 500000+400000-320000-175
575000
Operating Expenses
= 400000+220000+15000
635000

Sales - Cost of Goods Sold

320,000 - 240,000
80,000
Gross Profit/Sales
80,000/320,000
25%
GPR x Ending Inventory-2012
25% x 70,000
17,500.00

Sales - Cost of Goods Sold

320,000 - 240,000
80,000
Gross Profit/Sales
80,000/320,000
25%
GPR x Ending Inventory-2012
25% x 50,000
12,500.00

00-320000

00000+400000-320000-17500+12500

00000+220000+15000

Student Name: MEGAN REED

Class: ACCT610 I001 Spr 15
Problem 5-27

Required:
a. What was the annual amortization resulting from the acquisition-date fair-value alloc
Consideration paid
Fair value of Noncontrolling Interest
Fair value of Subsidiary -acquisition date
Book value of Subsidiary's Equity
Fair value in excess of book value
Assignment of Excess Fair Value

Building
Patented Technology
Total

Amount
18,000.00
36,000.00

Life
(in yrs)
9
6

Annual
Amortization
$
2,000.00
6,000.00
$
8,000.00

b. Were the intra-entity transfers upstream or downstream?

The intra-entity transfer is upstream since Brey, the subsidiary company sold inventory
to Pitino, the parent company.
c. What unrealized gross profit existed as of January 1, 2013?

Year
Cost to Brey
2012
81,000.00

Transfer Price
to Pitino
Gross Profit Gross Profit %
135,000.00
54,000.00
40%

Inventory, End (12/31/2012)

x Gross Profit Percentage
Unrealized Gross Profit, 1/1/2013

37,500.00
40%
$15,000.00

d. What unrealized gross profit existed as of December 31, 2013?

Year
Cost to Brey
2013
92,800.00

Transfer Price
to Pitino
Gross Profit Gross Profit %
160,000.00
67,200.00
42%

Inventory, End (12/31/2013)

x Gross Profit Percentage
Unrealized Gross Profit, 12/31/2013

50,000.00
42%
$21,000.00

e. What amounts make up the $68,400 Investment IncomeBrey account balance for 2013?
In this problem, the method used is equity method since the investment income is not 90% of
dividend income (when initial value method is used) and also not 90% of reported income (if
the partial equity method is used).

Thus:
Brey Companys reported income2013
Annual Amortization (excess of fair value)
Recognition of 2012 unrealized gross profit
Deferral of 2013 unrealized gross profit
Earned income of subsidiary from consolidated perspective
Parents ownership percentage
Investment Income - Brey

f. What was the noncontrolling interests share of the subsidiarys net income for 2013?
Earned income of subsidiary from consolidated perspective
Noncontrolling Interest %
Noncontrolling Interest in subsidiary's net income

g. What amounts make up the $450,000 Investment in Brey account balance as of Dece
2013?
Investment in Brey (Consideration paid)
Income of Brey
2011
2012
2013
Total
Unrealized gross profit 12/31/2013
Realized income 2011-2013
Pitino's Ownership Percentage

64,000.00
80,000.00
90,000.00
234,000.00
(21,000.00)
213,000.00
90%

Annual Amortization (excess of fair value) : $8000 x 3 yrs x 90%

Dividends paid by Brey
2011
2012
2013
Total
Pitino's Ownership Percentage
Investment in Brey, 12/31/2013)

19,000.00
23,000.00
27,000.00
69,000.00
90%

h. Prepare the 2013 worksheet entry to eliminate the subsidiarys beginning owners eq
balances.
Common Stock, Brey
Retained Earnings-Brey, 1/1/2011 (278,000-15000)
Investment in Brey (90% x 413000)
Noncontrolling Interest in Brey (10% x 413000)
i. Without preparing a worksheet or consolidation entries, determine the consolidation
balances for these two companies.

a. Sales $1,068,000. The parents balance is added to the subsidiarys balance less the $160,000
intra-entity transfers for the period.

b. Cost of Goods Sold $570,000. The computation begins by adding the parents balance to the su
balance less the $160,000 in intra-entity transfers for the period. The $15,000 unrealized gross pro
2012 is deducted to recognize this income currently. Next, the$21,000 ending unrealized gross pro
to cost of goods sold to defer the income until a
later year when the goods are sold to an outside party.
c. Expenses $260,400 wherein he parents balance is added to the subsidiarys balance. Annual
excess fair-value amortization of $8,000 is added.

d. Investment IncomeBrey = $0 (intercompany balance is eliminated to include

individual revenue and expense accounts of the subsidiary)
e. Noncontrolling Interest in Breys Income $7,600.
f. Consolidated Net Income $230,000 computed as Sales less Cost of Goods Sold, Operating
Expenses and the noncontrolling interest share of Brey's Income
g. Retained Earnings, 1/1/11 $488,000. The equity method has been applied; therefore, the paren
balance equals the consolidated total.

h. Dividends Paid $136,000. Only the amount the parent paid is shown in the consolidated statem
Distributions from the subsidiary to the parent are eliminated as intra-entity transfers. Any paymen
noncontrolling interest reduces the ending balance attributed to these outside owners.
i. Cash and Accounts Receivable $228,000. The two balances are added after removal of the
$16,000 intercompany balance

j. Inventory $370,000. The two balances are added after deducting $21,000 unrealized
gross profit
k. Investment in Brey $0. The investment balance is eliminated so that the actual assets and liabili
subsidiary can be included.
l. Land, Buildings, and Equipment $1,304,000. Net allocation of $12,000 for 3 year amortization is
added
m. Patented technology $18,000 (amortization of $6,000 per year for 3 years
n. Total Assets $1,920,000. This figure is a summation of the preceding consolidated assets.
o. Liabilities $773,000. The two balances are added after removal of the $16,000 intra-entity
balance
p. Noncontrolling Interest in Brey, 12/31/13 $50,000
q. Common Stock $515,000. Only the parent company balance is reported within the consolidated
statements.
r. Retained Earnings, 12/31/2013 $582,000

s. Total Liabilities and Equities $1,920,000. This figure is the summation of all consolidated liabiliti
equities.

uisition-date fair-value allocations?

$

342,000.00
(38,000.00)
380,000.00
(326,000.00)
54,000.00

y company sold inventory

ccount balance for 2013?

ment income is not 90% of

0% of reported income (if

90,000.00
(8,000.00)
15,000.00
(21,000.00)
76,000.00
90%
68,400.00

diarys net income for 2013?

$
$

76,000.00
10%
7,600.00

account balance as of December 31,

342,000.00

191,700.00
(21,600.00)

(62,100.00)
450,000.00

diarys beginning owners equity

$

150,000.00
263,000.00
$ 371,700.00
41,300.00

etermine the consolidation

rys balance less the $160,000 in

g the parents balance to the subsidiarys

e $15,000 unrealized gross profit from
00 ending unrealized gross profit is added

subsidiarys balance. Annual

ted to include

f Goods Sold, Operating

en applied; therefore, the parents

own in the consolidated statements.

ra-entity transfers. Any payment to the
se outside owners.

dded after removal of the

$21,000 unrealized

hat the actual assets and liabilities of the

,000 for 3 year amortization is

or 3 years
ding consolidated assets.
of the $16,000 intra-entity

ported within the consolidated

ation of all consolidated liabilities and