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 $390,000. At the acquisition date, the fair value of the noncontrolling interest was $260,000 and Keller's book value was $510,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition date fair value of $140,000. This intangible asset is being amortized over 20 years. Gibson sold Keller land with a book value of $65,000 on January 2, 2017, for $130,000. Keller still holds this land at the end of the current year. Keller regularly transfers inventory to Gibson. In 2017, it shipped inventory costing $133,000 to Gibson at a price of $190,000. During 2018, intra-entity shipments totaled $240,000, although the original cost to Keller was only $156,000. 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 $60,000 at the end of 2018 Keller Company $ (540,000) 340,000 45,000 $ $ Gibson Company $ (840, 000) 540,000 140,000 (93, 000) $ (253, 000) $ (1, 156, 000) (253, 000) 135,000 $ (1,274, 000) 173,000 364, 000 430,000 798,000 150,000 500,000 $ 2, 415,000 $ (511,000) (630, 000) Sales Cost of goods sold Operating expenses Equity in earnings of Keller Net income Retained earnings, 1/1/18 Net income (above) Dividends declared Retained earnings, 12/31/18 Cash Accounts receivable Inventory Investment in Keller Land Buildings and equipment (net) Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/18 Total liabilities and equities (155, 000) (640,000) (155, 000) 45,000 (750, 000) 100,000 450,000 360,000 $ 430,000 340,000 $ 1,680,000 $ (490,000) (360, 000) (80, 000) (750,000) $ (1,680,000) (1,274, 000) $ (2,415, 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 $80,000 book value (cost

Answer 1

Part A

GIBSON AND KELLER Consolidation Worksheet Year Ending December 31, 2015
Accounts	Gibson	Keller	debit	credit	Noncontrolling Interest	Consolidated Totals
Sales	(840000)	(540000)	240000			(1140000)
Cost of goods sold	540000	340000	16800	251400		645400
Operating expenses	140000	45000	7000			192000
Equity in earnings of Keller	(93000)	0	93000			0
Separate company net income	(253000)	(155000)
Consolidated net income						(302600)
To noncontrolling interest					(57040)	57040
To Gibson Company						(245560)
RE, 1/1—Gibson	(1156000)		77600			(1078400)
RE, 1/1—Keller		(640000)	640000
Net income	(253000)	(155000)				(245560)
Dividends declared	135000	45000		27000	18000	115000
Retained earnings, 12/31	(1274000)	(750000)				(1208960)
Cash	173000	100000				273000
Accounts receivable	364000	450000		60000		754000
Inventory	430000	360000		16800		773200
Investment in Keller	798000		27000	825000		0
Land	150000	430000		65000		515000
Buildings and equipment (net)	500000	340000				840000
Customer list			133000	7000		126000
Total assets	2415000	1680000				3281200
Liabilities	(511000)	(490000)	60000			(941000)
Common stock	(630000)	(360000)	360000			(630000)
Additional paid-in capital	0	(80,000)	80000			0
Retained earnings, 12/31	(1274000)	(750000)				(1208960)
NCI in Keller, 1/1				462200	(462200)
NCI in Keller, 12/31					(501240)	(501240)
Total liabilities and equity	(2415000)	(1680000)	1734400	1734400		(3281200)

(190000*20%)*((190000-133000)/190000) = 11400

(240000*20%)*((240000-156000)/240000) = 16800

240000+11400 = 251400

140000/20 = 7000

(130000-65000)+(7000*60%*3)

Net income attributable to noncontrolling interest

Keller reported net income	155000
Excess fair value amortization	(7000)
2014 Intra-entity gross profit realized in 2015 (inventory)	11400
2015 Intra-entity gross profit deferred (inventory)	(16800)
Keller realized net income 2015	142600
Outside ownership percentage	40%
Net income attributable to noncontrolling interest	57040

Part B

Change in entry *TA and ED

Entry	Account titles and explanation	Debit	Credit
Entry *TA	Retained earnings, 1/1/15 (Gibson)	58500
	Buildings	65000
	Accumulated depreciation		123500
Entry *TA (Alternative)	Retained earnings, 1/1/15 (Gibson)	36000
	Buildings (net) (65000-(65000/10))		36000
Entry ED	Accumulated depreciation	6500
	Operating (or depreciation) expense		6500