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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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