Problem 4 Hoyle, Schaefer and Doupnik-Chapter 5 Modified Problem 31-I use Equity method instead of Initial Value method Following are financial statements for Moore Company and Kirby Company for 2021: Sales Cost of Goods Sold Moore (800,000) Kirby (600,000) 500,000 400,000 Operating and Interest expense 100,000 160,000 Equity in Kirby's earnings Net Income (40,000) Retained earnings 1/1/21 (1,025,970) Net Income (550,000) (40,000) Dividend paid Retained earnings 12/31/21 130,000 7 (590,000) Cash and receivables 217,000 180,000 Inventory 224,000 160,000 Investment in Kirby 0 Equipment (net) 600,000 Buildings 1,000,000 420,000 650,000 Accumulated depreciation Buildings (100,000) Other Assets 200.000 Total Assets (200,000) 100,000 1,310,000 Liabilities Common Stock (1,138,000) (600,000) (570,000) (150,000) Retained earnings, 12/31/21 (590,000) Total Liabilities and equity (1.310,000) 6. Determine the balance of Equity in Kirby's earnings at December 2021. The parent company uses the equity method to account for the investment 1. What is the goodwill at the acquisition date? 2. What is the ECOBV amortization? 3. Determine the unrealized gain on the sale of the building from Moore to Kirby in 2020 4. Determine the unrealized profits on the transfer of inventory from Kirby to Moore in 2020 and 2021? Moore purchased 90% of Kirby on January 1, 2020, for $657,000 in cash. On that date, the 10% noncontrolling interest was assessed to have a $73,000 fair value. Also at the acquisition date, Kirby held equipment (4-year remaining life) undervalued on the financial records by $20,000 and interest-bearing liabilities (5-year remaining life) overvalued by $40,000. The rest of the excess fair value over book value was assigned to previously unrecognized brand names and amortized over a 10-year life. During 2020 Kirby earned Net Income of $80,000 and paid no dividends Each year Kirby sells Moore inventory at a 20% gross profit rate. Intra-entity sales were $145,000 in 2020 and $160,000 in 2021, On January 1, 2021, 30% of the 2020 transfer were still on hand and, on December 31, 2021, 40% of the 2021 transfers remained. Moore sold Kirby a building on January 2, 2020. It had cost Moore $100,000 but had $90,000 in accumulated depreciation at the time of this transfer. The price was $25,000 in cash. At that time the building had a five-year remaining life. 5. Determine the balance of Investment in Kirby at December 2021. The parent company uses the equity method to account for the investment. 7. Prepare the consolidation journal entries & Complete the consolidation Worksheet and then answer the following questions: a What is the total consolidated revenue? b. What is the total consolidated cost of goods sold? What is the consolidated total for buildings at December 31? d. What is the consolidated total for inventory at December 31 Accounts Mo Sales Cost of Goods Sold Kirby (800,000) (600,000) 500,000 Consolidation Entries Noncontrolling Consolidated Debit Crodi Totals 400,000 Operating Expenses Equity in Kaby's Income 100,000 160,000 Separate company NI (40,000) Consolidated Net Income NCI in Sub's Income Net Income to Controlling Interest Retained Earnings 1/1/21 Moore Company (1,025,970) Kirby Company Net Income (above) Dividend Paid 130,000 Retained Earnings 12/31 (550,000) (40,000) 0 (590,000) Cash & Receivables 217,000 Inventory 224,000 180,000 160.000 Investment in Kirby 0 Equipment() Buildings Accumulated Depreciation-Buildings Other Assets Brand name Liabilities Common Stock Total Amets NCI Interest in Sub 1/1/2021 NCI Interest in Sub 12/31/2021 Retained Earnings 12/31/2021 Total Liabilities and Equities 600,000 420,000 1,000,000 650,000 (100,000) (200,000) 200,000 100,000 1,310,000 (1.138,000) (570,000) (600,000) (150,000) (590,000) (1.310,000)