The individual financial statements for Gibson Company and Keller Company for th
ID: 2342201 • Letter: T
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 Keller on January 1, 2017, in exchange for various considerations totaling $780,000. At the acquisition date, the fair value of the noncontrolling interest was $520,000 and Keller’s book value was $1,040,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $260,000. This intangible asset is being amortized over 20 years.
Gibson sold Keller land with a book value of $80,000 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 $217,000 to Gibson at a price of $310,000. During 2018, intra-entity shipments totaled $360,000, although the original cost to Keller was only $234,000. 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 $40,000 at the end of 2018.
Gibson Company
Keller Company
Sales
$
(960,000
)
$
(660,000
)
Cost of goods sold
660,000
460,000
Operating expenses
150,000
35,000
Equity in earnings of Keller
(99,000
)
0
Net income
$
(249,000
)
$
(165,000
)
Retained earnings, 1/1/18
$
(1,276,000
)
$
(700,000
)
Net income (above)
(249,000
)
(165,000
)
Dividends declared
150,000
50,000
Retained earnings, 12/31/18
$
(1,375,000
)
$
(815,000
)
Cash
$
185,000
$
70,000
Accounts receivable
388,000
570,000
Inventory
550,000
480,000
Investment in Keller
981,000
0
Land
130,000
550,000
Buildings and equipment (net)
512,000
460,000
Total assets
$
2,746,000
$
2,130,000
Liabilities
$
(621,000
)
$
(755,000
)
Common stock
(750,000
)
(480,000
)
Additional paid-in capital
0
(80,000
)
Retained earnings, 12/31/18
(1,375,000
)
(815,000
)
Total liabilities and equities
$
(2,746,000
)
$
(2,130,000
)
(Note: Parentheses indicate a credit balance.)
Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller.
How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $140,000 book value (cost of $300,000) to Keller for $260,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.
Gibson Company
Keller Company
Sales
$
(960,000
)
$
(660,000
)
Cost of goods sold
660,000
460,000
Operating expenses
150,000
35,000
Equity in earnings of Keller
(99,000
)
0
Net income
$
(249,000
)
$
(165,000
)
Retained earnings, 1/1/18
$
(1,276,000
)
$
(700,000
)
Net income (above)
(249,000
)
(165,000
)
Dividends declared
150,000
50,000
Retained earnings, 12/31/18
$
(1,375,000
)
$
(815,000
)
Cash
$
185,000
$
70,000
Accounts receivable
388,000
570,000
Inventory
550,000
480,000
Investment in Keller
981,000
0
Land
130,000
550,000
Buildings and equipment (net)
512,000
460,000
Total assets
$
2,746,000
$
2,130,000
Liabilities
$
(621,000
)
$
(755,000
)
Common stock
(750,000
)
(480,000
)
Additional paid-in capital
0
(80,000
)
Retained earnings, 12/31/18
(1,375,000
)
(815,000
)
Total liabilities and equities
$
(2,746,000
)
$
(2,130,000
)
Required Required B Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller. (Do not round intermediate calculations. For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.) GIBSON AND Consolidation Worksheet For the Year Ending December 31, 2018 Consolidation Entries Gibson 5 (0,000)880,000) 480,000 35,000 Cost of goods sold 880,000 150,000 (39,000) Equity in earnings of Keller Separate company Consolidated net income net income S (249,000) (185,000) To noncontrolling interest To Gibson Company 1/1-Gibson (1,278,000) (700,000) (249,000(185.000) Net income Dividends declared 50,000 5 (1,375,000) (815,000) 5 185,000 70,000 570,000 480,000 150,000 earnings, 12/31 Accounts receivable nventory Investment in Keller 388,000 550,000 981,000 130,000 512,000 550,000 480,000 Buildings and equipment (net) Customer list Total assets 5 2,748,000 2,130,000 5 (821,000)(755,000) Common stock 750,000(480,000 Additional paid-in capital (80,000) (1,375,000)815,000) earnings, 12/31 NCI in Keller, 1/1 NCI in Keller, 12/31 Total liabilities and equity 5 (2,748,000) (2,130,000) 0SExplanation / Answer
Consolidation Worksheet Consiolidation entries Accounts Gibson Keller Debit Credit NCI Consolidated Totals Sales ($960,000) ($660,000) ($1,620,000) Cost of goods sold $660,000 $460,000 $21,600 $18,600 $1,123,000 Operating expense $150,000 $35,000 $13,000 $198,000 Equity in earnings of Keller ($99,000) $99,000 $0 Separate company net income ($249,000) ($165,000) Consolidated net income ($299,000) To noncontrolling interest ($59,600) ($59,600) To Gibson Company ($239,400) Retained Earnings, 1/1 ($1,276,000) ($700,000) $808,600 ($1,167,400) Net income ($249,000) ($165,000) ($239,400) Dividends declared $150,000 $50,000 $30,000 $20,000 $150,000 Retained Earnings, 12/31 ($1,375,000) ($815,000) ($1,256,800) Cash $185,000 $70,000 $255,000 Accounts receivable $388,000 $570,000 $40,000 $918,000 Inventory $550,000 $480,000 $21,600 $1,008,400 Investment in Keller $981,000 $0 $981,000 $0 Land $130,000 $550,000 $90,000 $590,000 Building and Equipment $512,000 $460,000 $972,000 Customer list $260,000 $13,000 $247,000 Total assets $2,746,000 $2,130,000 $3,990,400 Liabilities ($621,000) ($755,000) $40,000 ($1,336,000) Common Stock ($750,000) ($480,000) $480,000 ($750,000) APIC ($80,000) $80,000 $0 Retained Earnings, 12/31 ($1,375,000) ($815,000) ($1,256,800) Non-controlling interest, 1/1 $608,000 $0 Non-controlling interest, 12/31 $647,600 ($647,600) Total liabilities and SE ($2,746,000) ($2,130,000) $1,802,200 $1,802,200 ($3,990,400) Unrealized gain in unsold inventory in 2017 Selling price $310,000 Cost $217,000 Profit $93,000 Gross margin 30% Unsold Inventory $62,000 Unrealized gain in unsold inventory in 2017 $18,600 Unrealized gain in unsold inventory in 2018 Selling price $360,000 Cost $234,000 Profit $126,000 Gross margin 35% Unsold Inventory $72,000 Unrealized gain in unsold inventory in 2018 $21,600 Journal entry to defer the intra entity gain as of the beginning of the year Land $90,000 Retained Earning $90,000 Journal entry to defer the intra entity gain as of the end of the year Retained Earnings $90,000 Land $90,000 Journal entries for unrealized gain on inventory Retained earnings $18,600 Cost of goods gold $18,600 (To record profit realized on 2017 inventory) Cost of goods sold $21,600 Inventory $21,600 (To record unrealized gain on 2018 inventory) Journal entry for sale of building Cash $260,000 Accumulated Depreciation-Building $160,000 Gain on sale of building $120,000 Building $300,000 Consolidation entry in 2017 to eliminate gain on sale of building Building $40,000 Gain on sale of building $120,000 Depreciation $12,000 Accumulated Depreciation-Building $148,000 Excess Depreciation charged is reversed on consolidation (26000-14000 = 12000) Journal entry to defer the intra entity gain as of the beginning of the year Accumulated Depreciation $148,000 Retained Earnings $108,000 Building $40,000 Journal entry to defer the intra entity gain as of the end of the year Retained Earnings $108,000 Building $40,000 Accumulated Depreciation-Building $136,000 Depreciation $12,000
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