Following are the individual financial statements for Gibson and Davis for the year ending
December 31, 2011:
| Gibson | Davis |
Sales | $ (600,000) | $(300,000) |
Cost of goods sold | 300,000 | 140,000 |
Operating expenses | 174,000 | 60,000 |
Dividend income | (24,000) | –0– |
Net income | $ (150,000) | $(100,000) |
Retained earnings, 1/1/11 | $ (700,000) | $(400,000) |
Net income | (150,000) | (100,000) |
Dividends paid | 80,000 | 40,000 |
Retained earnings, 12/31/11 | $ (770,000) | $(460,000) |
Cash and receivables | $ 248,000 | $100,000 |
Inventory | 500,000 | 190,000 |
Investment in Davis | 528,000 | –0– |
Buildings (net) | 524,000 | 600,000 |
Equipment (net) | 400,000 | 400,000 |
Total assets | $ 2,200,000 | $ 1,290,000 |
Liabilities | (800,000) | (490,000) |
Common stock | (630,000) | (340,000) |
Retained earnings, 12/31/11 | (770,000) | (460,000) |
Total liabilities and stockholders’ equity | $(2,200,000) | $(1,290,000) |
Gibson acquired 60 percent of Davis on April 1, 2011, for $528,000. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $30,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $352,000. Davis earned income evenly during the year but paid the entire dividend on November 1, 2011.
a. Prepare a consolidated income statement for the year ending December 31, 2011.
b. Determine the consolidated balance for each of the following accounts as of December 31, 2011:
Goodwill | Buildings (net) |
Equipment (net) | Dividends Paid |
Common Stock |
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