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 $750,000. At the acquisition date, the fair value of the noncontrolling interest was $500,000 and Kellers book value was $1,000,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $250,000. 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 $75,000 on January 2, 2020, for $160,000. Keller still holds this land at the end of the current year.

Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $180,000 to Gibson at a price of $300,000. During 2021, intra-entity shipments totaled $350,000, although the original cost to Keller was only $245,000. 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 $35,000 at the end of 2021.

Gibson CompanyKeller CompanySales$(950,000)$(650,000)Cost of goods sold650,000450,000Operating expenses140,00030,000Equity in earnings of Keller(102,000)0Net income$(262,000)$(170,000)Retained earnings, 1/1/21$(1,266,000)$(695,000)Net income (above)(262,000)(170,000)Dividends declared145,00045,000Retained earnings, 12/31/21$(1,383,000)$(820,000)Cash$184,000$60,000Accounts receivable386,000560,000Inventory540,000470,000Investment in Keller966,0000Land120,000540,000Buildings and equipment (net)511,000450,000Total assets$2,707,000$2,080,000Liabilities$(584,000)$(720,000)Common stock(740,000)(470,000)Additional paid-in capital0(70,000)Retained earnings, 12/31/21(1,383,000)(820,000)Total liabilities and equities$(2,707,000)$(2,080,000)

(Note: Parentheses indicate a credit balance.)

1. Prepare a worksheet to consolidate the separate 2021 financial statements for Gibson and Keller.

2. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building on January 2, 2020, with a $135,000 book value (cost of $290,000) to Keller for $250,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

1.