Problem

House Corporation has been operating profitably since its creation in 1959. At the beginni...

House Corporation has been operating profitably since its creation in 1959. At the beginning of 2011, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule:

Consideration transferred for 70 percent interest in Wilson

 

 

$ 707,000

 

Fair value of the 30% noncontrolling interest

 

303,000

Wilson business fair value

 

$1,010,000

 

Wilson book value

 

790,000

Excess fair value over book value

 

 

$ 220,000

 

Assignments to adjust Wilson’s assets to fair value:

 

 

To buildings|(20-year life)

$ 60,000

 

 

To equipment (4-year life)

(20,000)

 

 

To franchises (10-year life)

40,000

80,000

To goodwill (indefinite life)

 

$ 140,000

House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House’s purchases during 2011 and 2012 and related ending inventory balances follow:

Year

Intra-Entity Purchases

Remaining Intra-Entity Inventory—End of Year (at transfer price)

2011

$120,000

$40,000

2012

 150,000

 60,000

On January 1, 2013, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company’s outstanding common stock. The total price of these shares was $240,000, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2013, House acquired additional inventory from Wilson at a price of $200,000. Of this merchandise, 45 percent is still held at year-end.

Using the three companies’ following financial records for 2013, prepare a consolidation worksheet. The partial equity method based on operating income has been applied to each investment.

 

House Corporation

Wilson Company

Cuddy Company

Sales and other revenues

$ (900,000)

$ (700,000)

$(300,000)

Cost of goods sold

551,000

300,000

140,000

Operating expenses

219,000

270,000

90,000

Income of Wilson Company

(91,000)

-0-

-0-

Income of Cuddy Company

(28,000)

(28,000)

-0-

 Net income

$ (249,000)

$ (158,000)

$ (70,000)

Retained earnings, 1/1/13

$ (820,000)

$ (590,000)

$(150,000)

Net income (above)

(249,000)

(158,000)

(70,000)

Dividends paid

100,000

96,000

50,000

 Retained earnings, 12/31/13

$ (969,000)

$ (652,000)

$(170,000)

Cash and receivables

$ 220,000

$ 334,000

$ 67,000

Inventory

390,200

320,000

103,000

Investment in Wilson Company

807,800

-0-

-0-

Investment in Cuddy Company

128,000

128,000

-0-

Buildings

385,000

320,000

144,000

Equipment

310,000

130,000

88,000

Land

180,000

300,000

16,000

 Total assets

$ 2,421,000

$ 1,532,000

$ 418,000

Liabilities

$ (632,000)

$ (570,000)

$ (98,000)

Common stock

(820,000)

(310,000)

(150,000)

Retained earnings, 12/31/13

(969,000)

(652,000)

(170,000)

 Total liabilities and equities

$(2,421,000)

$(1,532,000)

$(418,000)

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