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 $720,000. At the acquisition date, the fair value of the noncontrolling interest was $480,000 and Keller’s book value was $960,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $240,000. This intangible asset is being amortized over 20 years.

Gibson sold Keller land with a book value of $70,000 on January 2, 2017, for $150,000. Keller still holds this land at the end of the current year.

Keller regularly transfers inventory to Gibson. In 2017, it shipped inventory costing $188,500 to Gibson at a price of $290,000. During 2018, intra-entity shipments totaled $340,000, although the original cost to Keller was only $204,000. 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 $30,000 at the end of 2018.

	Gibson Company				Keller Company
Sales	$	(940,000	)		$	(640,000	)
Cost of goods sold		640,000				440,000
Operating expenses		130,000				95,000
Equity in earnings of Keller		(63,000	)			0
Net income	$	(233,000	)		$	(105,000	)
Retained earnings, 1/1/18	$	(1,256,000	)		$	(690,000	)
Net income (above)		(233,000	)			(105,000	)
Dividends declared		140,000				40,000
Retained earnings, 12/31/18	$	(1,349,000	)		$	(755,000	)
Cash	$	183,000			$	100,000
Accounts receivable		384,000				550,000
Inventory		530,000				460,000
Investment in Keller		933,000				0
Land		250,000				530,000
Buildings and equipment (net)		510,000				440,000
Total assets	$	2,790,000			$	2,080,000
Liabilities	$	(711,000	)		$	(765,000	)
Common stock		(730,000	)			(460,000	)
Additional paid-in capital		0				(100,000	)
Retained earnings, 12/31/18		(1,349,000	)			(755,000	)
Total liabilities and equities	$	(2,790,000	)		$	(2,080,000	)

(Note: Parentheses indicate a credit balance.)

1. Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller.

2. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $130,000 book value (cost of $280,000) to Keller for $240,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

Answer 1

ANSWER

Consolidation Worksheet
			Consiolidation entries
Accounts	Gibson	Keller	Debit	Credit	NCI	Consolidated Totals
Sales	($940,000)	($640,000)				($1,580,000)
Cost of goods sold	$640,000	$440,000	$27,200	$20,300		$1,086,900
Operating expense	$130,000	$95,000	$12,000			$237,000
Equity in earnings of Keller	($63,000)		$63,000			$0
Separate company net income	($233,000)	($105,000)
Consolidated net income						($256,100)
To noncontrolling interest					($34,440)	($34,440)
To Gibson Company						($221,660)
Retained Earnings, 1/1	($1,256,000)	($690,000)	$790,300			($1,155,700)
Net income	($233,000)	($105,000)				($221,660)
Dividends declared	$140,000	$40,000		$24,000	$16,000	$140,000
Retained Earnings, 12/31	($1,349,000)	($755,000)				($1,237,360)
Cash	$183,000	$100,000				$283,000
Accounts receivable	$384,000	$550,000		$30,000		$904,000
Inventory	$530,000	$460,000		$27,200		$962,800
Investment in Keller	$933,000	$0		$933,000		$0
Land	$250,000	$530,000		$80,000		$700,000
Building and Equipment	$510,000	$440,000				$950,000
Customer list			$240,000	$12,000		$228,000
Total assets	$2,790,000	$2,080,000				$4,027,800
Liabilities	($711,000)	($765,000)	$30,000			($1,446,000)
Common Stock	($730,000)	($460,000)	$460,000			($730,000)
APIC		($100,000)	$100,000			$0
Retained Earnings, 12/31	($1,349,000)	($755,000)				($1,237,360)
Non-controlling interest, 1/1				$596,000		$0
Non-controlling interest, 12/31					$614,440	($614,440)
Total liabilities and SE	($2,790,000)	($2,080,000)	$1,722,500	$1,722,500		($4,027,800)
Unrealized gain in unsold inventory in 2017
Selling price	$290,000
Cost	$188,500
Profit	$101,500
Gross margin	35%
Unsold Inventory	$58,000
Unrealized gain in unsold inventory in 2017	$20,300
Unrealized gain in unsold inventory in 2018
Selling price	$340,000
Cost	$204,000
Profit	$136,000
Gross margin	40%
Unsold Inventory	$68,000
Unrealized gain in unsold inventory in 2018	$27,200
Journal entry to defer the intra entity gain as of the beginning of the year
Retained Earnings	$20,300
Cost of Goods sold		$20,300
Journal entry to defer the Intra entity gain as of the end of the year
Cost of goods sold	$27,200
Inventory		$27,200
Profit on land
Selling price	$150,000
Book Value	$70,000
Profit on land	$80,000
Profit on land is debited to retained earnings
NCI, 1/1/2018
Common Stock	$460,000
APIC	$100,000
Retained earnings, 1/1/2018	$690,000
Excess of fair value over book value	$240,000
Total	$1,490,000
NCI, 40%	$596,000
NCI, 31/12/2018
NCI,1/1/2018	$596,000
Add: Profit for 2018 (86100 x 40%)	$34,440
Less: Dividend	($16,000)
NCI, 31/12/2018	$614,440
If building had sold instead of land
Cost of building	$280,000
Book value	$130,000
Accumulated depreciation	$150,000
Selling price	$240,000
Less: Book value	$130,000
Gain on sale of land	$110,000
Consolidation entry in the year of sale
Gain on sale of land	$110,000
Building	$40,000
Accumulated depreciation		$150,000
Consolidation entry in 2018
Gain on sale of land	$110,000
Building	$40,000
Depreciation expense	$4,000
Accumulated depreciation		$154,000
Difference in depreciation
Depreciation at original cost	$28,000
Depreciation at selling cost	$24,000
Depreciation charged less by	$4,000

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