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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
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 $300,000. At the acquisition date, the fair value of the noncontrolling interest was $200,000 and Keller's book value was $390,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $110,000. 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 $50,000 on January 2, 2020, for $100,000. Keller still holds this land at the end of the current year. Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $112,000 to Gibson at a price of $160,000. During 2021, intra-entity shipments totaled $210,000, although the original cost to Keller was only $136,500. 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 $30,000 at the end of 2021. Sales Cost of goods sold Operating expenses Equity in earnings of Keller Net income Retained earnings, 1/1/21 Net income (above) Dividends declared Retained earnings, 12/31/21 Cash Accounts receivable Inventory Investment in Keller Land Buildings and equipment (net) Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/21 Total liabilities and equities Gibson Company $ (810,000) 510,000 110,000 (102,000) $ (292,000) $(1,126,000) (292,000) 120,000 $(1,298,000) $ 170,000 358,000 400,000 771,000 120,000 497,000 $ 2,316,000 $ (418,000) (600,000) 0 (1,298,000) $(2,316,000) Keller Company $ (510,000) 310,000 30,000 0 $ (170,000) $ (625,000) (170,000) 30,000 $ (765,000) $ 70,000 420,000 330,000 0 400,000 310,000 $ 1,530,000 $ (355,000) (330,000) (80,000) (765,000) $(1,530,000) 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 $65,000 book value (cost of $150,000) to Keller for $110,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. For the Year Ending December 31, 2021 Consolidation Entries Accounts Gibson Keller Debit Credit Noncontrolling Consolidated Interest Totals $ (810,000) $ (510,000) 510,000 310,000 110,000 30,000 (102,000) 0 (292,000) $ (170,000) $ $ (1,126,000) Sales Cost of goods sold Operating expenses Equity in earnings of Keller Separate company net income Consolidated net income To noncontrolling interest To Gibson Company Retained earnings, 1/1/21Gibson Retained earnings, 1/1/21Keller Net income Dividends declared Retained earnings, 12/31/21 Cash Accounts receivable Inventory Investment in Keller Land Buildings and equipment (net) Customer list Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/21 Noncontrolling interest 1/1/21 Noncontrolling interest 12/31/21 Total liabilities and equity (292,000) 120,000 $ (1,298,000) $ $ 170,000 $ 358,000 400,000 771,000 120,000 497,000 (625,000) (170,000) 30,000 (765,000) 70,000 420,000 330,000 400,000 310,000 $ 2,316,000 $ 1,530,000 $ (418,000) $ (355,000) (600,000) (330,000) (80,000) (1,298,000) (765,000) $ (2,316,000) $ (1,530,000) $ 0 0 Consolidation Worksheet Entries 1 2 Prepare Entry *TA to defer the intra-entity gain as of the beginning of the year. Note: Enter debits before credits. Debit Credit Transaction 1 Accounts Retained earnings Buildings Accumulated depreciation Consolidation Worksheet Entries 1 2 Prepare Entry ED to remove the excess depreciation for the current year created by the transfer price. Note: Enter debits before credits. Debit Crec Transaction Accounts 2 Accumulated depreciation Operating expenses 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 $300,000. At the acquisition date, the fair value of the noncontrolling interest was $200,000 and Keller's book value was $390,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $110,000. 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 $50,000 on January 2, 2020, for $100,000. Keller still holds this land at the end of the current year. Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $112,000 to Gibson at a price of $160,000. During 2021, intra-entity shipments totaled $210,000, although the original cost to Keller was only $136,500. 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 $30,000 at the end of 2021. Sales Cost of goods sold Operating expenses Equity in earnings of Keller Net income Retained earnings, 1/1/21 Net income (above) Dividends declared Retained earnings, 12/31/21 Cash Accounts receivable Inventory Investment in Keller Land Buildings and equipment (net) Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/21 Total liabilities and equities Gibson Company $ (810,000) 510,000 110,000 (102,000) $ (292,000) $(1,126,000) (292,000) 120,000 $(1,298,000) $ 170,000 358,000 400,000 771,000 120,000 497,000 $ 2,316,000 $ (418,000) (600,000) 0 (1,298,000) $(2,316,000) Keller Company $ (510,000) 310,000 30,000 0 $ (170,000) $ (625,000) (170,000) 30,000 $ (765,000) $ 70,000 420,000 330,000 0 400,000 310,000 $ 1,530,000 $ (355,000) (330,000) (80,000) (765,000) $(1,530,000) 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 $65,000 book value (cost of $150,000) to Keller for $110,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. For the Year Ending December 31, 2021 Consolidation Entries Accounts Gibson Keller Debit Credit Noncontrolling Consolidated Interest Totals $ (810,000) $ (510,000) 510,000 310,000 110,000 30,000 (102,000) 0 (292,000) $ (170,000) $ $ (1,126,000) Sales Cost of goods sold Operating expenses Equity in earnings of Keller Separate company net income Consolidated net income To noncontrolling interest To Gibson Company Retained earnings, 1/1/21Gibson Retained earnings, 1/1/21Keller Net income Dividends declared Retained earnings, 12/31/21 Cash Accounts receivable Inventory Investment in Keller Land Buildings and equipment (net) Customer list Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/21 Noncontrolling interest 1/1/21 Noncontrolling interest 12/31/21 Total liabilities and equity (292,000) 120,000 $ (1,298,000) $ $ 170,000 $ 358,000 400,000 771,000 120,000 497,000 (625,000) (170,000) 30,000 (765,000) 70,000 420,000 330,000 400,000 310,000 $ 2,316,000 $ 1,530,000 $ (418,000) $ (355,000) (600,000) (330,000) (80,000) (1,298,000) (765,000) $ (2,316,000) $ (1,530,000) $ 0 0 Consolidation Worksheet Entries 1 2 Prepare Entry *TA to defer the intra-entity gain as of the beginning of the year. Note: Enter debits before credits. Debit Credit Transaction 1 Accounts Retained earnings Buildings Accumulated depreciation Consolidation Worksheet Entries 1 2 Prepare Entry ED to remove the excess depreciation for the current year created by the transfer price. Note: Enter debits before credits. Debit Crec Transaction Accounts 2 Accumulated depreciation Operating expenses
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