Pitino acquired 80 percent of Breys outstanding shares on Ja

Pitino acquired 80 percent of Brey\'s outstanding shares on January 1, 2016, in exchange for $387,000 in cash. The subsidiary\'s stockholders\' equity accounts totaled $371,000 and the noncontrolling interest had a fair value of $96,750 on that day. However, a building (with a eight-year remaining life) in Brey\'s accounting records was undervalued by $23,000 Pitino assigned the rest of the excess fair value over book value to Brey\'s patented technology (five-year remaining life) Brey reported net income from its own operations of $69,000 in 2016 and $85,000 in 2017. Brey declared dividends of $21,500 in 2016 and $25,500 in 2017 Inventory Remaining at transfer price) 42,500 Transfer Price Year-End (at to Pitino Year 2016 2017 2018 Cost to Brey $ 74,000 88,000 101,750 $ 140,000 $30,000 160,000 185,000 60,000 At December 31, 2018, Pitino owes Brey $21,000 for inventory acquired during the period The following separate account balances are for these two companies for December 31, 2018, and the year then ended Note: Parentheses indicate a credit balance.

Solution

a Annual Amortization resulting from the acquisition date fair value allocation Fair value paid for acquisition $387,000 Fair value of noncontrolling interest $96,750 Total fair value $483,750 Less: Book value $371,000 Excess of fair value over book value $112,750 Excess assigned to Building $23,000 8 years Patented Technology $89,750 5 years Annual amortization (89750/5) $17,950 Annual depreciation (23000/8) $2,875 Total $20,825 b Intra-entity transfer are upstream as the subsidiary sold the inventory to Parent company c Intra entity gross profit in inventory existed as of January 1, 2018 Transfer price $160,000 Cost $88,000 Gross Profit $72,000 Gross Margin 45% Inventory on Jan 1, 2018 $42,500 Gross Profit (42500 x 45%) $19,125 d Intra entity gross profit in inventory existed as of December 31, 2018 Transfer price $185,000 Cost $101,750 Gross Profit $83,250 Gross Margin 45% Inventory on Dec 31, 2018 $60,000 Gross Profit (60000 x 45%) $27,000 e Amounts make up the $64240 Equity Earning of Brey account balancefor 2018 Brey\'s reported net income $109,000 Excess fair value amortization ($20,825) Realized gross profit $19,125 Deferred gross profit ($27,000) Adjusted subsidiary net income $80,300 Ownership 80% Equity in earnings of Brey $64,240 f Net income attributable to the non controlling interest for 2018 Adjusted Subsidiary net income $80,300 Less: Parent share $64,240 Non controlling interest $16,060 g Amount make up the $469020 Investment in Brey account balanceas of December 31, 2018 Investment in Brey (consideration transferred) $387,000 Net income of Brey Reported 2016 $69,000 2017 $85,000 2018 $109,000 Total $263,000 Intra entity gross profit, 12/31/2018 ($27,000) Adjusted net income 2016-2018 $236,000 Pitino\'s ownership 80% $188,800 Excess Amortization ($62,475) ($49,980) Dividends declared by Brey 2016 $21,500 2017 $25,500 2018 $24,000 Total $71,000 Pitino\'s ownership 80% ($56,800) Investment in Brey, 31/21/2018 $469,020