Question
Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2015: Gibson Davis Sales $ (666,000 ) $ (398,000
| Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2015: |
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| Sales | $ | (666,000 | ) | $ | (398,000 | ) | |||||||||
| Cost of goods sold | 308,000 | 177,000 | |||||||||||||
| Operating expenses | 181,000 | 61,000 | |||||||||||||
| Dividend income | (18,000 | ) | 0 | ||||||||||||
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| Net income | $ | (195,000 | ) | $ | (160,000 | ) | |||||||||
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| Retained earnings, 1/1/15 | $ | (760,000 | ) | $ | (415,000 | ) | |||||||||
| Net income | (195,000 | ) | (160,000 | ) | |||||||||||
| Dividends declared | 70,000 | 30,000 | |||||||||||||
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| Retained earnings, 12/31/15 | $ | (885,000 | ) | $ | (545,000 | ) | |||||||||
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| Cash and receivables | $ | 306,200 | $ | 148,000 | |||||||||||
| Inventory | 512,000 | 113,000 | |||||||||||||
| Investment in Davis | 583,800 | 0 | |||||||||||||
| Buildings (net) | 545,000 | 632,000 | |||||||||||||
| Equipment (net) | 455,000 | 496,000 | |||||||||||||
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| Total assets | $ | 2,402,000 | $ | 1,389,000 | |||||||||||
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| Liabilities | $ | (887,000 | ) | $ | (504,000 | ) | |||||||||
| Common stock | (630,000 | ) | (340,000 | ) | |||||||||||
| Retained earnings, 12/31/15 | (885,000 | ) | (545,000 | ) | |||||||||||
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| Total liabilities and stockholders equity | $ | (2,402,000 | ) | $ | (1,389,000 | ) | |||||||||
| Gibson acquired 60 percent of Davis on April 1, 2015, for $583,800. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $60,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $389,200. Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2015.
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Principles of Accounting
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson
12th edition
978-1133603054, 113362698X, 9781285607047, 113360305X, 978-1133626985
