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 $1,020,000. At the acquisition date, the fair value of the noncontrolling interest was $680,000 and Kellers book value was $1,360,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $340,000. This intangible asset is being amortized over 20 years.
Gibson sold Keller land with a book value of $75,000 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 $234,000 to Gibson at a price of $390,000. During 2018, intra-entity shipments totaled $440,000, although the original cost to Keller was only $308,000. 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 2018.
Gibson Company | Keller Company | ||||||
Sales | $ | (1,040,000 | ) | $ | (740,000 | ) | |
Cost of goods sold | 740,000 | 540,000 | |||||
Operating expenses | 120,000 | 75,000 | |||||
Equity in earnings of Keller | (75,000 | ) | 0 | ||||
Net income | $ | (255,000 | ) | $ | (125,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,356,000 | ) | $ | (740,000 | ) | |
Net income (above) | (255,000 | ) | (125,000 | ) | |||
Dividends declared | 145,000 | 45,000 | |||||
Retained earnings, 12/31/18 | $ | (1,466,000 | ) | $ | (820,000 | ) | |
Cash | $ | 193,000 | $ | 100,000 | |||
Accounts receivable | 404,000 | 650,000 | |||||
Inventory | 630,000 | 560,000 | |||||
Investment in Keller | 1,116,000 | 0 | |||||
Land | 210,000 | 630,000 | |||||
Buildings and equipment (net) | 520,000 | 540,000 | |||||
Total assets | $ | 3,073,000 | $ | 2,480,000 | |||
Liabilities | $ | (777,000 | ) | $ | (960,000 | ) | |
Common stock | (830,000 | ) | (600,000 | ) | |||
Additional paid-in capital | 0 | (100,000 | ) | ||||
Retained earnings, 12/31/18 | (1,466,000 | ) | (820,000 | ) | |||
Total liabilities and equities | $ | (3,073,000 | ) | $ | (2,480,000 | ) | |
(Note: Parentheses indicate a credit balance.)
A. Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller.
B. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $180,000 book value (cost of $380,000) to Keller for $340,000 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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