2.99 See Answer

Question: On January 1, 2020, McIlroy, Inc., acquired

On January 1, 2020, McIlroy, Inc., acquired a 60 percent interest in the common stock of Stinson, Inc., for $372,000. Stinson’s book value on that date consisted of common stock of $100,000 and retained earnings of $220,000. Also, the acquisition-date fair value of the 40 percent noncontrol- ling interest was $248,000. The subsidiary held patents (with a 10-year remaining life) that were undervalued within the company’s accounting records by $70,000 and an unrecorded customer list (15-year remaining life) assessed at a $45,000 fair value. Any remaining excess acquisition-date fair value was assigned to goodwill. Since acquisition, McIlroy has applied the equity method to its Investment in Stinson account and no goodwill impairment has occurred. At year-end, there are no intra-entity payables or receivables.
Intra-entity inventory sales between the two companies have been made as follows:

On January 1, 2020, McIlroy, Inc., acquired a -1

The individual financial statements for these two companies as of December 31, 2021, and the year then ended follow:

On January 1, 2020, McIlroy, Inc., acquired a -2

a. Show how McIlroy determined the $411,000 Investment in Stinson account balance. Assume that McIlroy defers 100 percent of downstream intra-entity profits against its share of Stinson’s income.
b. Prepare a consolidated worksheet to determine appropriate balances for external financial reporting as of December 31, 2021.


See Answer