The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2011, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2010, in exchange for various considerations totaling $570,000. At the acquisition date, the fair value of the noncontrolling interest was $380,000 and Keller’s book value was $850,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $100,000. This intangible asset is being amortized over 20 years.
Gibson sold Keller land with a book value of $60,000 on January 2, 2010, for $100,000. Keller still holds this land at the end of the current year.
Keller regularly transfers inventory to Gibson. In 2010, it shipped inventory costing $100,000 to Gibson at a price of $150,000. During 2011, intra-entity shipments totaled $200,000, although the original cost to Keller was only $140,000. 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 $40,000 at the end of 2011.
| Gibson Company | Keller Company |
Sales | $ (800,000) | $ (500,000) |
Cost of goods sold | 500,000 | 300,000 |
Operating expenses | 100,000 | 60,000 |
Income of Keller Company | (84,000) | -0- |
Net income | $ (284,000) | $ (140,000) |
Retained earnings, 1/1/11 | $(1,116,000) | $ (620,000) |
Net income (above) | (284,000) | (140,000) |
Dividends paid | 115,000 | 60,000 |
Retained earnings, 12/31/11 | $(1,285,000) | $ (700,000) |
Cash | $ 177,000 | $ 90,000 |
Accounts receivable | 356,000 | 410,000 |
Inventory | 440,000 | 320,000 |
Investment in Keller Company | 726,000 | -0- |
Land | 180,000 | 390,000 |
Buildings and equipment (net) | 496,000 | 300,000 |
Total assets | $ 2,375,000 | $ 1,510,000 |
Liabilities | $ (480,000) | $ (400,000) |
Common stock | (610,000) | (320,000) |
Additional paid-in capital | -0- | (90,000) |
Retained earnings, 12/31/11 | (1,285,000) | (700,000) |
Total liabilities and equities | $(2,375,000) | $(1,510,000) |
a. Prepare a worksheet to consolidate the separate 2011 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 $60,000 book value (cost of $140,000) to Keller for $100,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.
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