On January 1, 2012, 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 acquisitiondate 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.

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, 2013, and the year then ended follow:

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, 2013.

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Year 2012 2013 Cost to Mcllroy 120,000 1 12,000 Transfer Price to Stinson 150,000 160,000 Ending Balance (at transfer price) 50,000 40,000 Mcllroy, Inc. Stinson, Inc S (700,000) $335,000) Sales Cost of goods sold Operating expenses Equity earnings in Stinson 460,000 は1.1)01) (28,000) 205,000 70,000 .__ . . . . . (80000 (650,000) Retained earnings, 1/1/13. Net income (above). Dividends paid . . . . $ (695,000) (280,000) (60,000) 15,000 (80,000) 15,931) Retained earnings, 12/31/13 Cash and receivables $ (730,000 325000) S 248,000 148,000 29,00 Investment in Stinson . Buildings (net) Equipment (net 233,000 411,000 308,000 220,000 . . . 202,000 335,000) 20,000 Total assets.. Liabilities. Common stock Retained earnings, 12/31/13. 51420,000 585,000 $ (390,000) (160,000) (300,000) (100,0) (325,000) (730,000) Total liabilities and equities... $(1,420,000) (585,000)