On January 1, 2014, 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 noncontrolling 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:

The individual financial statements for these two companies as of December 31, 2015, and the year then ended follow:

Required:

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, 2015.

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Transfer Price to Stinson Ending Balance transfer price) Cost to Mcllroy $120,000 112,000 Year (at 2014 2015 $150,000 160,000 $50,000 40,000 Mcllroy, Inc. Stinson, Inc. Sales Cost of goods sold Operating expenses Equity in earnings in Stinson $ (700,000) 460,000 188,000 (28,000) $ (80,000 ..$ 695,000) (80,000) 45,000 $ (730,000) $(335,000) 205,000 70,000 Net income Retained earnings, 1/1/15 Net income. .. Dividends declared $ (60,000) $(280,000) (60,000) 15,000 $(325,000) $148,000 129,000 .- Retained earnings, 12/31/15 Cash and receivables Inventory Investment in Stinson. . Buildings (net) Equipment (net)... Patents (net) 248,000 233,000 411,000 308,000 220,000 202,000 86,000 20,000 $585,000 Total assets Liabilities Common stock Retained earnings, 12/B1/15 1,420,000 (390,000) (300,000) (730,000) $(1,420,000) $(160,000) (100,000) (325,000) $(585,000) Total liabilities and equities