Protrade Corporation acquired 80 percent of the outstanding

Protrade Corporation acquired 80 percent of the outstanding voting stock of Seacraft Company on January 1, 2017, for $484,000 in cash and other consideration. At the acquisition date, Protrade assessed Seacraft\'s identifiable assets and liabilities at a collective net fair value of $725,000 and the fair value of the 20 percent noncontrolling interest was $121,000. 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 Sales Cost of goods sold Operating expenses Retained earnings, 1/1/18 Inventory Buildings (net) Investment income Protrade Seacraft 840,000 560,000 390,000 297,000 170,000 125,000 940,000 380,000 366,000 130,000 378,000 177,000 Not given 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 $110,000 in 2017 and $130,000 in 2018. Of this inventory, Seacraft retained and then sold $48,000 of the 2017 transfers in 2018 and held $62,000 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 $70,000 in 2017 and $100,000 in 2018. Of this inventory, $41,000 of the 2017 transfers were retained and then sold by Protrade in 2018, whereas $55,000 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 $120,000, although its book value was only $70,000 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

Solution

a.

Cost of Goods Sold

562250

Inventory

472750

Net Income attributable to Non controlling Interest

27600

b.

Cost of Goods Sold

592250

Inventory

475375

Net Income attributable to Non controlling Interest

26550

c.

Building (net)

525000

Operating Exp

285000

Net Income attributable to Non controlling Interest

27600

(a) COGS:-

Portrade COGS

390000

Seacraft COGS

297000

Elimination of 2018 Intra equity Transfer

(130000)

Recognition gross profit deferred in 2017 (2018 beginning inventory)

48000 transfer price / 1.6 = 30000 cost

48000 – 30000 = 18000 intra equity gross profit

(18000)

Deferral of 2018 intra equity gross profit in ending inventory

62000 transfer price / 1.6 = 38750 cost

62000 – 38750 = 23250 intra equity gross profit

23250

562250

Inventory :-

Portrade Inventory

366000

Seacraft Inventory

130000

Deferral of 2018 intra equity gross profit in ending inventory

62000 transfer price / 1.6 = 38750 cost

62000 – 38750 = 23250 intra equity gross profit

(23250)

472750

Net Income Attributable to Non controlling Int :-

Seacraft sale

560000

Seacraft COGS

(297000)

Seacraft Operating Exp

(125000)

138000

Net Income Attributable to Non controlling Int (138000 * 20%)

27600

(b) COGS:-

Portrade COGS

390000

Seacraft COGS

297000

Elimination of 2018 Intra equity Transfer

(100000)

Recognition gross profit deferred in 2017 (2018 beginning inventory)

41000 transfer price / 1.6 = 25625 cost

41000 – 25625 = 15375 intra equity gross profit

(15375)

Deferral of 2018 intra equity gross profit in ending inventory

55000 transfer price / 1.6 = 34375 cost

55000 – 34375 = 20625 intra equity gross profit

20625

592250

Inventory :-

Portrade Inventory

366000

Seacraft Inventory

130000

Deferral of 2018 intra equity gross profit in ending inventory

55000 transfer price / 1.6 = 34375 cost

55000 – 34375 = 20625 intra equity gross profit

(20625)

475375

Net Income Attributable to Non controlling Int :-

Seacraft sale

560000

Seacraft COGS

(297000)

Seacraft Operating Exp

(125000)

[(55000 – 41000)/1.6] * 0.6

(5250)

132750

Net Income Attributable to Non controlling Int (132750 * 20%)

26550

(c) Building :-

Portrade Building

378000

Seacraft Building

177000

(+) Depreciation on gain (120000 – 70000)/5

10000

(-) [120000 – 70000] - 10000

40000

525000

Operating Exp :-

Portrade Operating Exp

170000

Seacraft Operating Exp

125000

(-) Depreciation on gain

10000

285000

a.	Cost of Goods Sold	562250
	Inventory	472750
	Net Income attributable to Non controlling Interest	27600
b.	Cost of Goods Sold	592250
	Inventory	475375
	Net Income attributable to Non controlling Interest	26550
c.	Building (net)	525000
	Operating Exp	285000
	Net Income attributable to Non controlling Interest	27600