Dynamic Golf Corporation (Dynamic) manufactures and markets golf equipment. On January 1, 2020, Dynamic acquires Sports Unlimited
Question:
Dynamic Golf Corporation (Dynamic) manufactures and markets golf equipment. On January 1, 2020, Dynamic acquires Sports Unlimited (Sports), a distributor of sports equipment. Dynamic’s intention for acquiring Sports is to have Sports be another outlet for the sale of Dynamic’s golf equipment.
Dynamic paid cash of 356,000 for 65 percent of Sports’ outstanding common stock. Sports book value on January 1, 2020 was $320,000. Common Stock was $100,000 and Retained Earnings was $220,000.
On January 1, 2020, Sports held patents that were undervalued by 82,000. The patents have a remaining life of 10 years. Additionally, Sports had a Customer List that was not recorded on the books of Sports. The Customer List had a value of 44,000 and a remaining life of 10 years. Any remaining excess of acquisition date fair value was assigned to Goodwill. No Goodwill has been impaired during 2020 and 2021.
Intra-entity inventory sales from Dynamic to Sports are listed below:
Year | Transfer price to sports | Gross profit ratio | Ending Inventory balance at Transfer Price |
2020 | 150,000 | 20% | 50,000 |
2021 | 146,000 | 15% | 40,000 |
On January 1, 2021, Sports sold equipment to Dynamic for 49,000. Sports originally purchased the equipment for $60,000 and the equipment had a net book value of $30,000 on January 1, 2021. The equipment has a remaining useful life of 10 years. Both Dynamic and Sports use straight-line depreciation with no residual value. Sports recorded the gain on the equipment sales to Other Income and Deductions.
Dynamic uses the equity method to account for its investment in Sports.
The Trial Balances of Dynamic and Sports on December 31, 2021 are attached below.
Trial Balance | ||
December 31, 2021 | ||
Debit/Credit | ||
Dynamic golf | Sports unlimited | |
Cash and receivables | 263,940 | 148,000 |
inventory | 233,000 | 129,000 |
investment in sports unlimited | 390,755 | - |
buildings, net | 308,000 | 202,000 |
equipment, net | 220,000 | 86,000 |
patents | - | 20,000 |
customer list | - | - |
goodwill | - | - |
liabilities | (390,000) | (160,000) |
common stock | (300,000) | (100,000) |
retained eanrings | (695,000) | (280,000) |
NCI interest | - | - |
dividends | 45,000 | 15,000 |
sales | 700,000 | (335,000) |
COGS | 460,000 | 230,000 |
operating expense | 188,000 | 70,000 |
other income & deductions | - | (25,000) |
Equity earnings in sports | (23,695) | - |
Totals | - | - |
Check figure: (86,300)
Your Completed Project must include the following schedules.
1. An Acquisition Date Fair-Value Allocation Schedule for January 1, 2020;
2. Consolidation Journal entries for December 2021 in journal entry format;
3. A Consolidated Worksheet for the Year Ended December 31, 2021. See Exhibit 5.4 on page 224 as an example;
4. Income distribution schedules for 2021 for the parent and subsidiary; and
5.Consolidated 2021financial statements–IN GOOD FORM (income statement, statement of stockholder equity and balance sheet). Exhibit 4.7 on page 173 can be used as a guide.
Expert Answer:
Acquisition Date FairValue Allocation Schedule for January 1 2020 Fair value of consideration transferred Cash paid for 65 of Sports outstanding commo... View the full answer
