Question
The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2018, follow. Gibson acquired a 60 percent interest in
The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2018, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2017, in exchange for various considerations totaling $510,000. At the acquisition date, the fair value of the noncontrolling interest was $340,000 and Kellers book value was $670,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $180,000. This intangible asset is being amortized over 20 years.
Gibson sold Keller land with a book value of $85,000 on January 2, 2017, for $170,000. Keller still holds this land at the end of the current year.
Keller regularly transfers inventory to Gibson. In 2017, it shipped inventory costing $149,500 to Gibson at a price of $230,000. During 2018, intra-entity shipments totaled $280,000, although the original cost to Keller was only $168,000. 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 $45,000 at the end of 2018.
Gibson Company | Keller Company | ||||||
Sales | $ | (880,000 | ) | $ | (580,000 | ) | |
Cost of goods sold | 580,000 | 380,000 | |||||
Operating expenses | 180,000 | 65,000 | |||||
Equity in earnings of Keller | (81,000 | ) | 0 | ||||
Net income | $ | (201,000 | ) | $ | (135,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,196,000 | ) | $ | (660,000 | ) | |
Net income (above) | (201,000 | ) | (135,000 | ) | |||
Dividends declared | 110,000 | 65,000 | |||||
Retained earnings, 12/31/18 | $ | (1,287,000 | ) | $ | (730,000 | ) | |
Cash | $ | 177,000 | $ | 90,000 | |||
Accounts receivable | 372,000 | 490,000 | |||||
Inventory | 470,000 | 400,000 | |||||
Investment in Keller | 834,000 | 0 | |||||
Land | 190,000 | 470,000 | |||||
Buildings and equipment (net) | 504,000 | 380,000 | |||||
Total assets | $ | 2,547,000 | $ | 1,830,000 | |||
Liabilities | $ | (590,000 | ) | $ | (620,000 | ) | |
Common stock | (670,000 | ) | (400,000 | ) | |||
Additional paid-in capital | 0 | (80,000 | ) | ||||
Retained earnings, 12/31/18 | (1,287,000 | ) | (730,000 | ) | |||
Total liabilities and equities | $ | (2,547,000 | ) | $ | (1,830,000 | ) | |
(Note: Parentheses indicate a credit balance.)
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Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller.
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How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $100,000 book value (cost of $220,000) to Keller for $180,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.
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