Question

Following are financial statements for Moore Company and Kirby Company for 2018:

	Moore				Kirby
Sales	$	(800,000	)		$	(600,000	)
Cost of goods sold		500,000				400,000
Operating and interest expenses		100,000				160,000
Net income	$	(200,000	)		$	(40,000	)
Retained earnings, 1/1/18	$	(990,000	)		$	(550,000	)
Net income		(200,000	)			(40,000	)
Dividends declared		130,000				0
Retained earnings, 12/31/18	$	(1,060,000	)		$	(590,000	)
Cash and receivables	$	217,000			$	180,000
Inventory		224,000				160,000
Investment in Kirby		657,000				0
Equipment (net)		600,000				420,000
Buildings		1,000,000				650,000
Accumulated depreciation—buildings		(100,000	)			(200,000	)
Other assets		200,000				100,000
Total assets	$	2,798,000			$	1,310,000
Liabilities	$	(1,138,000	)		$	(570,000	)
Common stock		(600,000	)			(150,000	)
Retained earnings, 12/31/18		(1,060,000	)			(590,000	)
Total liabilities and equity	$	(2,798,000	)		$	(1,310,000	)

• Moore purchased 90 percent of Kirby on January 1, 2017, for $657,000 in cash. On that date, the 10 percent noncontrolling interest was assessed to have a $73,000 fair value. Also at the acquisition date, Kirby held equipment (four-year remaining life) undervalued in its financial records by $20,000 and interest-bearing liabilities (five-year remaining life) overvalued by $40,000. The rest of the excess fair over book value was assigned to previously unrecognized brand names and amortized over a 10-year life.
• During 2017 Kirby reported a net income of $80,000 and declared no dividends.
• Each year Kirby sells Moore inventory at a 20 percent gross profit rate. Intra-entity sales were $145,000 in 2017 and $160,000 in 2018. On January 1, 2018, 30 percent of the 2017 transfers were still on hand, and on December 31, 2018, 40 percent of the 2018 transfers remained.
• Moore sold Kirby a building on January 2, 2017. It had cost Moore $100,000 but had $90,000 in accumulated depreciation at the time of this transfer. The price was $25,000 in cash. At that time, the building had a five-year remaining life.

Determine all consolidated balances computationally.

Answer 1

Sl. No.	Particulars	Consolidated Amount (in $)	Workings
1	Sales	12,40,000	The Balance has been obtained after adding book value of both the companies and eliminating intercompany transfer
2	Cost of goods sold
	Book value
	Moore	5,00,000
	Kirby	4,00,000
	Intercompany transfer (to be eliminated)	-1,60,000
	Realized gross profit (deferred in 2017)	-8,700
	Unrealized gross profit (deferral in 2018)	12,800
	Cost of goods sold	7,44,100
3	Operating and interest expenses	2,75,000	The Balance has been obtained after adding book value of both the companies and it includes amortization of $ 18000 and eliminating $3000 excess depreciation from assets transfer
4	Noncontrolling interest in consolidated net income	1,790	The Balance has been obtained after considering the inventory.
	Reported income in 2018	40,000
	Realized gross profit (deferred in 2017)	8,700
	Unrealized gross profit (deferral in 2018)	-12,800
	Realized income of subsidiary	35,900
	Excess fair value amortization	-18,000
	subsidiaries net income (adjusted)	17,900
	Non Controlling share	10.00%
	Non controlling interest	1,790
5	Consolidated net income	2,20,900	The Balance has been obtained after considering consolidated sales less consolidated expenses and non controlling interest
	Non Controlling share	1,790	Calculated above
	Controlling share	2,19,110
6	Retained earnings, 1/1/18	10,25,970	As the company uses initial value method , its retained earning must be adjusted for changes in subsidiaries book value, excess amortization and the impact of unrealized gross profit in previous year.
	Reported balance Sheet of Moore 01/01/2018	9,90,000
	Building transfer (The building was overstated by 15000 however the same has been reduced by one year excess depreciation)	-12,000
	Conversion of Initial Value to Equity Method
		47,900
	Increase in susidiaries book value- $80,000
	Excess fair value amortization - ($18,000)
	on 31/12/2017 unrealized profit deferral ( As subsidiary prior income was overstated) ($8,700)
	Realized increase in book value - $53,300
	.
	Shareholding - 90%
	Retained Earning as on 01/01/2018	10,25,900
7	Dividends paid	1,30,000	Only parent balance
8	Retained earnings, 12/31/18	11,15,080	Beginning value + Controlling interest share of consolidated net income - dividends paid
9	Cash and receivables	3,97,000	After adding book value of both the company
10	Inventory	3,71,200	After adding book value of both the company and defer $12,800 ending unrealized profit.
11	Investment in Kirby	-	Eliminated in the process of consolidation
12	Equipment (net)	10,30,000	After adding book value of both the company and adjusted for excess amortization and allocation.
13	Buildings	17,25,000	After adding book value of both the company and add $75,000 impact to return to historical cost as computed above
14	Accumulated depreciation	3,84,000	After adding book value of both the company and adjusting to historical cost ($87,000 at the beginning less $3,000 excess depreciation)
15	Other assets	3,00,000	Add both the companies book value
16	Brand names	40,000	Original $50,000 less amortization for two years at $5,000 each year.
17	Total assets	34,79,200	Total
18	Liabilities	16,84,000	Add two book value less the original allocation ($40,000) after amortization of two years ($8,000 per year)
19	NCI	80,120	10 % of 691300 adjusted for beginning book value ($7,00,000 less $8,700 deferral of unrealized gross profit) plus $9,200 share of beginning amortized excess fair value allocation plus $1,790 income share
20	Common stock	6,00,000	Parent Balance
21	Retained earnings 12/31/18	11,15,080	Computed Above
22	Total liabilities and equity	34,79,200	Total
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