Question
Q-1 The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2021, follow. Gibson acquired a 60 percent interest
Q-1
The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2021, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2020, in exchange for various considerations totaling $540,000. At the acquisition date, the fair value of the noncontrolling interest was $360,000 and Kellers book value was $710,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $190,000. This intangible asset is being amortized over 20 years. Gibson uses the partial equity method to account for its investment in Keller.
Gibson sold Keller land with a book value of $90,000 on January 2, 2020, for $180,000. Keller still holds this land at the end of the current year.
Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $144,000 to Gibson at a price of $240,000. During 2021, intra-entity shipments totaled $290,000, although the original cost to Keller was only $203,000. In each of these years, 20 percent of the merchandise was not resold to outside parties until the period following the transfer. Gibson owes Keller $50,000 at the end of 2021.
| Gibson Company |
| Keller Company | ||||
Sales | $ | (890,000 | ) |
| $ | (590,000 | ) |
Cost of goods sold |
| 590,000 |
|
|
| 390,000 |
|
Operating expenses |
| 190,000 |
|
|
| 70,000 |
|
Equity in earnings of Keller |
| (78,000 | ) |
|
| 0 |
|
Net income | $ | (188,000 | ) |
| $ | (130,000 | ) |
Retained earnings, 1/1/21 | $ | (1,206,000 | ) |
| $ | (665,000 | ) |
Net income (above) |
| (188,000 | ) |
|
| (130,000 | ) |
Dividends declared |
| 115,000 |
|
|
| 70,000 |
|
Retained earnings, 12/31/21 | $ | (1,279,000 | ) |
| $ | (725,000 | ) |
Cash | $ | 178,000 |
|
| $ | 100,000 |
|
Accounts receivable |
| 374,000 |
|
|
| 500,000 |
|
Inventory |
| 480,000 |
|
|
| 410,000 |
|
Investment in Keller |
| 849,000 |
|
|
| 0 |
|
Land |
| 200,000 |
|
|
| 480,000 |
|
Buildings and equipment (net) |
| 505,000 |
|
|
| 390,000 |
|
Total assets | $ | 2,586,000 |
|
| $ | 1,880,000 |
|
Liabilities | $ | (627,000 | ) |
| $ | (655,000 | ) |
Common stock |
| (680,000 | ) |
|
| (410,000 | ) |
Additional paid-in capital |
| 0 |
|
|
| (90,000 | ) |
Retained earnings, 12/31/21 |
| (1,279,000 | ) |
|
| (725,000 | ) |
Total liabilities and equities | $ | (2,586,000 | ) |
| $ | (1,880,000 | ) |
REQUIREMENT: (Note: Parentheses indicate a credit balance.)
a. Prepare a worksheet to consolidate the separate 2021 financial statements for Gibson and Keller.
b. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building on January 2, 2020, with a $105,000 book value (cost of $230,000) to Keller for $190,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. NOTE: Please Answer Completely both parts. Make sure the values are correct.
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