5-21Student Name:MEGAN REED Class:ACCT610 I001 Spr 15Problem 5-27Requirement:a. For consolidation purposes, does the direction of the transfers (upstream or downstream) affectthe balances to be reported here?The noncontrolling interest is no longer computed since Akron controls all the outstanding stockof 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:Computations:a. Retained Earnings (beginning 1/1/2012)17,500.00Gross Profit =Sales - Cost of Goods SoldCost of Goods Sold17,500.00=320,000 - 240,000Gross Profit =80,000

Gross Profit Rate=Gross Profit/Sales=80,000/320,000Gross Profit Rate=25%

Unrealized Gross Profit =GPR x Ending Inventory-2012(2012)=25% x 70,000Unrealized Gross Profit =17,500.00(2012)b. Amortization Expense (2013)15,000.00Patented technology15,000.00

c. Sales (2013)320,000.00Cost of Goods Sold320,000.00

d. Cost of Goods Sold12,500.00Gross Profit =Sales - Cost of Goods SoldInventory12,500.00=320,000 - 240,000Gross Profit =80,000

Gross Profit Rate=Gross Profit/Sales=80,000/320,000Gross Profit Rate=25%

Unrealized Gross Profit =GPR x Ending Inventory-2012(2013)=25% x 50,000Unrealized Gross Profit =12,500.00(2013)Consolidated Income Statement:Akron, Inc. and SubsidiaryConsolidated Income StatementFor the Year Ended 12/31/2013Sales $1,380,000.00Sales: = 1100000+600000-320000Cost of Goods Sold575,000.001,380,000Gross Profit805,000.00Cost of Goods Sold =500000+400000-320000-17500+12500Operating Expenses635,000.00575000Consolidated Net Income$170,000.00Operating Expenses =400000+220000+15000635000

5-27Student Name: MEGAN REED Class:ACCT610 I001 Spr 15Problem 5-27Required:a. What was the annual amortization resulting from the acquisition-date fair-value allocations?Consideration paid$342,000.00Fair value of Noncontrolling Interest(38,000.00)Fair value of Subsidiary -acquisition date380,000.00Book value of Subsidiary's Equity(326,000.00)Fair value in excess of book value$54,000.00

Assignment of Excess Fair ValueAmountLife (in yrs)Annual AmortizationBuilding18,000.009$2,000.00Patented Technology36,000.0066,000.00Total$8,000.00

b. Were the intra-entity transfers upstream or downstream?The intra-entity transfer is upstream since Brey, the subsidiary company sold inventoryto Pitino, the parent company.

c. What unrealized gross profit existed as of January 1, 2013?YearCost to BreyTransfer Priceto PitinoGross ProfitGross Profit %201281,000.00135,000.0054,000.0040%Inventory, End (12/31/2012)37,500.00x Gross Profit Percentage40%Unrealized Gross Profit, 1/1/2013$15,000.00

d. What unrealized gross profit existed as of December 31, 2013?YearCost to BreyTransfer Priceto PitinoGross ProfitGross Profit %201392,800.00160,000.0067,200.0042%Inventory, End (12/31/2013)50,000.00x Gross Profit Percentage42%Unrealized Gross Profit, 12/31/2013$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$90,000.00Annual Amortization (excess of fair value)(8,000.00)Recognition of 2012 unrealized gross profit15,000.00Deferral of 2013 unrealized gross profit(21,000.00)Earned income of subsidiary from consolidated perspective76,000.00Parents ownership percentage90%Investment Income - Brey$68,400.00

f. What was the noncontrolling interests share of the subsidiarys net income for 2013?Earned income of subsidiary from consolidated perspective$76,000.00Noncontrolling Interest %10%Noncontrolling Interest in subsidiary's net income$7,600.00

g. What amounts make up the $450,000 Investment in Brey account balance as of December 31, 2013?

Investment in Brey (Consideration paid)$342,000.00Income of Brey2011$64,000.00201280,000.00201390,000.00Total234,000.00Unrealized gross profit 12/31/2013(21,000.00)Realized income 2011-2013213,000.00Pitino's Ownership Percentage90%191,700.00

Annual Amortization (excess of fair value) : $8000 x 3 yrs x 90%(21,600.00)

Dividends paid by Brey201119,000.00201223,000.00201327,000.00Total69,000.00Pitino's Ownership Percentage90%(62,100.00)Investment in Brey, 12/31/2013)$450,000.00

h. Prepare the 2013 worksheet entry to eliminate the subsidiarys beginning owners equity balances.Common Stock, Brey$150,000.00Retained Earnings-Brey, 1/1/2011 (278,000-15000)263,000.00Investment in Brey (90% x 413000)$371,700.00Noncontrolling Interest in Brey (10% x 413000)41,300.00i. 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 inintra-entity transfers for the period.b. Cost of Goods Sold $570,000. The computation begins by adding the parents balance to the subsidiarys balance less the $160,000 in intra-entity transfers for the period. The $15,000 unrealized gross profit from 2012 is deducted to recognize this income currently. Next, the$21,000 ending unrealized gross profit is added to cost of goods sold to defer the income until alater year when the goods are sold to an outside party.c. Expenses $260,400 wherein he parents balance is added to the subsidiarys balance. Annualexcess fair-value amortization of $8,000 is added.d. Investment IncomeBrey = $0 (intercompany balance is eliminated to includeindividual 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, OperatingExpenses and the noncontrolling interest share of Brey's Incomeg. Retained Earnings, 1/1/11 $488,000. The equity method has been applied; therefore, the parentsbalance equals the consolidated total.h. Dividends Paid $136,000. Only the amount the parent paid is shown in the consolidated statements. Distributions from the subsidiary to the parent are eliminated as intra-entity transfers. Any payment to the 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 balancej. Inventory $370,000. The two balances are added after deducting $21,000 unrealizedgross profit k. Investment in Brey $0. The investment balance is eliminated so that the actual assets and liabilities of the subsidiary can be included.l. Land, Buildings, and Equipment $1,304,000. Net allocation of $12,000 for 3 year amortization is addedm. Patented technology $18,000 (amortization of $6,000 per year for 3 yearsn. 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-entitybalancep. Noncontrolling Interest in Brey, 12/31/13 $50,000 q. Common Stock $515,000. Only the parent company balance is reported within the consolidatedstatements.r. Retained Earnings, 12/31/2013 $582,000s. Total Liabilities and Equities $1,920,000. This figure is the summation of all consolidated liabilities and equities.