Question

Gibson acquired a 60 percent interest in Keller on January 1, 2020, in exchange for various considerations totaling $810,000. At the acquisition date, the fair value of the noncontrolling interest was $540,000 and Keller’s book value was $1,080,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $270,000. This intangible asset is being amortized over 20 years. Gibson uses the partial equity method to account for its investment in Keller.

 

Gibson sold Keller land with a book value of $85,000 on January 2, 2020, for $180,000. Keller still holds this land at the end of the current year.

 

Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $208,000 to Gibson at a price of $320,000. During 2021, intra-entity shipments totaled $370,000, although the original cost to Keller was only $222,000. 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 $45,000 at the end of 2021.

Gibson Company				Keller Company
Sales	$	(970,000	)		$	(670,000	)
Cost of goods sold		670,000				470,000
Operating expenses		160,000				40,000
Equity in earnings of Keller		(96,000	)			0
Net income	$	(236,000	)		$	(160,000	)
Retained earnings, 1/1/21	$	(1,286,000	)		$	(705,000	)
Net income (above)		(236,000	)			(160,000	)
Dividends declared		110,000				55,000
Retained earnings, 12/31/21	$	(1,412,000	)		$	(810,000	)
Cash	$	186,000			$	80,000
Accounts receivable		390,000				580,000
Inventory		560,000				490,000
Investment in Keller		996,000				0
Land		140,000				560,000
Buildings and equipment (net)		513,000				470,000
Total assets	$	2,785,000			$	2,180,000
Liabilities	$	(613,000	)		$	(790,000	)
Common stock		(760,000	)			(490,000	)
Additional paid-in capital		0				(90,000	)
Retained earnings, 12/31/21		(1,412,000	)			(810,000	)
Total liabilities and equities	$	(2,785,000	)		$	(2,180,000	)

 

(Note: Parentheses indicate a credit balance.)

 

1. Prepare a worksheet to consolidate the separate 2021 financial statements for Gibson and Keller.

2. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building on January 2, 2020, with a $145,000 book value (cost of $310,000) to Keller for $270,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Consideration Transferred Add: Non Controlling Interest Fair Value Total Fair value less: Book Value Excess of Fair value Allocation to Customer List $ $ $ $ $ $ 810,000 540,000 1,350,000 -1,080,000 270,000 Life 270,000 20 years Annual Amortization $ 13,500 Consolidation Entries: Entry Account Debit Credit *TL $ 95,000 Retained Earning, 1/1/21 (Gibson) Land To remove unrealized gain on intra-entity downstream transfer of land made in 2020 $ 95,000 $ 22,400 Retained Earnings, 1/1/21 (Keller) Cost of Goods Sold To defer unrealized upstream Inventory gross profit from 2020 until 2021. ($320,000-$208,000) *20% $ 22,400 *C $ 21,540 Retained Earnings, 1/1/21 (Gibson) Investment in Keller To record parent's share of amortization $ 21,540 S $ $ $ 490,000 90,000 682,600 Common Stock (Keller) Additional Paid-in Capital Retained Earnings, 1/1/21 (Keller) Investment in Keller Noncontrolling interest in Keller To remove stockholders' equity accounts of Keller and recognize beginning NCI $ $ 757,560 505,040 A $ 256,500 Customer List Investment in Keller Noncontrolling interest in Keller To recognize amount paid within acquisition price for the customer list. $ $ 153,900 102,600 $ 96,000 Income of Keller Investment in Keller To eliminate intra-entity income accrual $ 96,000 D $ 24,000 Investment in Keller Dividend Paid To eliminate intra-entity dividend transfers $ 24,000

E $ 13,500 Amortization Expense Customer List To record amortization of customer list S 13,500 P $ 45,000 Liabilities Accounts Receivable To eliminate intra balances $ 45,000 TI $ 370,000 $ Sales Cost of goods sold To eliminate current year intra-entity inventory transfer 370,000 G $ 29,600 Cost of goods sold Inventory To defer 2021 unrealized inventory gross profit S 29,600 $ Non Controlling interest in Keller's Income: Keller Reported Income Less: Excess fair value amortization Add: 2020 Intra entity profit realized in 2021 Less: 2018 Intra entity GP deferred $ $ $ $ 160,000 -13,500 22,400 -29,600 139,300 40% 55,720 Non Controlling interest in Keller's net income $

Worksheet: Consolidation Entries Debit Consolidated Non Controlling Totals Gibson Company Keller Company Credit Sales Cost of goods sold $ $ -970,000 $ 670,000 $ -670,000 TI 470,000 G $ $ $ -1,270,000 $ 777,200 370,000 29,600 *G TI 13,500 96,000 $ 22,400 $ 370,000 40,000 E 213,500 $ $ $ 160,000 $ -96,000 $ -236,000 $ $ $ $ $ 1 -160,000 Operating expenses Equity in earnings of Keller Separate Income Consolidated Net Income Non Controlling Interest (Working above) Parent Retained earnings, 1/1/18 Gibson $ $ -55,720 $ $ -279,300 55,720 -223,580 $ -1,286,000 *TL $ -1,169,460 $ $ $ $ 95,000 21,540 22,400 682,600 Keller $ $ $ $ D $ 33,000 $ Net income (above) Dividends declared Retained earnings, 12/31/18 Cash Accounts receivable Inventory Investment in Keller *C -705,000 *G S - 160,000 55,000 -810,000 80,000 480,000 590,000 D -236,000 $ 110,000 $ -1,412,000 $ 186,000 $ 390,000 $ 560,000 $ 996,000 $ $ $ $ $ $ $ -223,580 22,000 $ 110,000 $ -1,283,040 $ 266,000 $ 825,000 $ 1,120,400 $ P G $ 33,000 *C S $ 45,000 $ 29,600 $ 21,540 $ 757,560 $ 96,000 $ 153,900 $ 95,000 1 А *TL $ $ 140,000 $ 513,000 $ 560,000 470,000 A $ 256,500 E $ 13,500 $ Land Buildings and equipment (net) Customer List Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/18 Non controlling interest in Keller, 1/1/18 $ $ $ $ 2,785,000 $ -613,000 $ -760,000 $ $ -1,412,000 $ 2,180,000 -790,000 P -490,000 S -90,000 S -810,000 $ $ $ 45,000 490,000 90,000 $ 605,000 $ 983,000 $ 243,000 $ 4,042,400 $ -1,358,000 $ -760,000 $ $ -1,283,040 -505,040 $ -102,600 $ -641,360 $ -641,360 $ -4,042,400 $ S A $ 505,040 $ $ 102,600 $ $ Non controlling interest in Keller, 12/31/18 Total liabilities and equities $ -2,785,000 $ -2,180,000