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Pitino acquired 90 percent of Brey’s outstanding shares on January 1 2013 in exchange for $342000 in cash The subsidiary’s stockholders’ equity accounts totaled

Pitino acquired 90 percent of Brey’s outstanding shares on January 1, 2013, in exchange for $342,000 in cash. The subsidiary’s stockholders’ equity accounts totaled $326,000 and the noncontrolling interest had a fair value of $38,000 on that day. However, a building (with a 9-year remaining life) in Brey’s accounting records was undervalued by $18,000. Pitino assigned the rest of the excess fair value over book value to Brey’s patented technology (6-year remaining life). Brey reported net income from its own operations of $64,000 in 2013 and $80,000 in 2014. Brey declared dividends of $19,000 in 2013 and $23,000 in 2014. Brey sells inventory to Pitino as follows:


At December 31, 2015, Pitino owes Brey $16,000 for inventory acquired during the period. The following separate account balances are for these two companies for December 31, 2015, and the year then ended. Credits are indicated by parentheses.

Answer each of the following questions:

a. What was the annual amortization resulting from the acquisition-date fair-value allocations?

b. Were the intra-entity transfers upstream or downstream? c. What unrealized gross profit existed as of January 1, 2015?

d. What unrealized gross profit existed as of December 31, 2015?

Jul 22 2020 View more View Less

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