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 $450,000. At the acquisition date, the fair value of the noncontrolling interest was $300,000 and Keller’s book value was $590,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $160,000. This intangible asset is being amortized over 20 years. Gibson sold Keller land with a book value of $75,000 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 $126,000 to Gibson at a price of $210,000. During 2018, intra-entity shipments totaled $260,000, although the original cost to Keller was only $182,000. 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 $35,000 at the end of 2018. Gibson Company Keller Company Sales $ (860,000 ) $ (560,000 ) Cost of goods sold 560,000 360,000 Operating expenses 160,000 55,000 Equity in earnings of Keller (87,000 ) 0 Net income $ (227,000 ) $ (145,000 ) Retained earnings, 1/1/18 $ (1,176,000 ) $ (650,000 ) Net income (above) (227,000 ) (145,000 ) Dividends declared 145,000 55,000 Retained earnings, 12/31/18 $ (1,258,000 ) $ (740,000 ) Cash $ 175,000 $ 70,000 Accounts receivable 368,000 470,000 Inventory 450,000 380,000 Investment in Keller 828,000 0 Land 170,000 450,000 Buildings and equipment (net) 502,000 360,000 Total assets $ 2,493,000 $ 1,730,000 Liabilities $ (585,000 ) $ (510,000 ) Common stock (650,000 ) (380,000 ) Additional paid-in capital 0 (100,000 ) Retained earnings, 12/31/18 (1,258,000 ) (740,000 ) Total liabilities and equities $ (2,493,000 ) $ (1,730,000 ) (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 $90,000 book value (cost of $200,000) to Keller for $160,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $90,000 book value (cost of $200,000) to Keller for $160,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. Prepare Entry *TA to defer the intra-entity gain as of the beginning of the year. Prepare Entry ED to remove the excess depreciation for the current year created by the transfer price.

Answer 1

GIBSON AND KELLER Consolidated Worksheet For Year Ending December 31, 2018 Consolidation Entries Non Controlling Consolidated Interest Gibson Keller Debit Credit Totals Accounts Sales Cost of goods sold (860,000 (560,000 Sales] 560,000 260,000 15,600 (1,160,000) 658,800 360,000 G1] 16,800 [G] 260,000 [sales] 55,000 E] Operating Expense Equity in earnings of Kellar Separate Net Income Consolidated Net Income Net Income attributable to NCI To Gibson Company 160,000 (87,000) (227,000) 145,000) 8,000 87,000 223,000 (278,200) (55,280)55,280 (222,920) Retained Earnings 1/1/-Gibson (1,176,000) ITL] 75,000 14,880 16,800 633,200 (1,086,120) Retained Earnings 1/1/-Keller (650,000) G] Net Income (above Dividends Declared Retained Earnings 12/31 (227,000) 145,000) 55,000 (1,258,000) 740,000) (222,920) 145,000 (1,164,040) 145,000 33,000 D] 22,000

Cash Accounts receivable Inventory Investment in Keller 175,000 368,000 450,000 828,000 70,000 470,000 380,000 245,000 803,000 814,400 35,000 [P] 15,600 G1] 14,880 [C] 667,920[S] 87,000 [i] 91,200 [A] 75,000 [TL] 33,000 Land Buildings and equipment (net) Customer List Total Assets 170,000 502,000 450,000 360,000 545,000 862,000 144,000 3,413,400 A] 152,000 8,000 E] 2,493,000 1.730,000 (585,000) (510 (650,000 (380,0) S] Liabilities Common stock Additional Paid in capital Retained Earnings 12/31 NCI in Keller, 1/1 ,000) [P] 35,000 380,000 100,000 (1,060,000) (650,000) (100,000) [s] (1,258,000) 740,000) (1,164,040) 445,280 [S] 60,800 [A (506,080) (539,360)(539,360) NCI in Keller, 12/31 Total Liabilites and equity (2,493,000)(1,730,000) 1,810,480 1,810,480 (3,413,400)

Book Value of Building Transfer Transfer price of Building $ 90,000 S 160,000 Gain of Transfer (160,000 90,000) Life remaining $ 70,000 1o years Excess Depreciation per year (70,000/10) Unamortized Excess Building at the end of year 2017 (70,000 7,000) 7,000 $ 63,000 Entry TA Transactions 1) Accounts titles and Explanation Retained Earnigns, 1/1/2015 (Gibson) Building (to remove the Unamortized value of Excess Value of Building) Debit Credit $63,000 S 63,000 ED 2) Accumulated Depreciation Operating Expense (to remove the excess depreciation charged during the year) 7,000 $ 7,000