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 $1,020,000. At the acquisition date, the fair value of the noncontrolling interest was $680,000 and Keller’s book value was $1,360,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $340,000. 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 $170,000. Keller still holds this land at the end of the current year.

Keller regularly transfers inventory to Gibson. In 2017, it shipped inventory costing $234,000 to Gibson at a price of $390,000. During 2018, intra-entity shipments totaled $440,000, although the original cost to Keller was only $308,000. 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	$	(1,040,000	)		$	(740,000	)
Cost of goods sold		740,000				540,000
Operating expenses		120,000				75,000
Equity in earnings of Keller		(75,000	)			0
Net income	$	(255,000	)		$	(125,000	)
Retained earnings, 1/1/18	$	(1,356,000	)		$	(740,000	)
Net income (above)		(255,000	)			(125,000	)
Dividends declared		145,000				45,000
Retained earnings, 12/31/18	$	(1,466,000	)		$	(820,000	)
Cash	$	193,000			$	100,000
Accounts receivable		404,000				650,000
Inventory		630,000				560,000
Investment in Keller		1,116,000				0
Land		210,000				630,000
Buildings and equipment (net)		520,000				540,000
Total assets	$	3,073,000			$	2,480,000
Liabilities	$	(777,000	)		$	(960,000	)
Common stock		(830,000	)			(600,000	)
Additional paid-in capital		0				(100,000	)
Retained earnings, 12/31/18		(1,466,000	)			(820,000	)
Total liabilities and equities	$	(3,073,000	)		$	(2,480,000	)

(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 $180,000 book value (cost of $380,000) to Keller for $340,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

Thank you so much in advance!

Answer 1

	Consolidation Worksheet
				Consiolidation entries
	Accounts	Gibson	Keller	Debit	Credit	NCI	Consolidated Totals
	Sales	($1,040,000)	($740,000)				($1,780,000)
	Cost of goods sold	$740,000	$540,000	$26,400	$23,400		$1,283,000
	Operating expense	$120,000	$75,000	$17,000			$212,000
	Equity in earnings of Keller	($75,000)		$75,000			$0
	Separate company net income	($255,000)	($125,000)
	Consolidated net income						($285,000)
	To noncontrolling interest					($42,000)	($42,000)
	To Gibson Company						($243,000)
	Retained Earnings, 1/1	($1,356,000)	($740,000)	$858,400			($1,237,600)
	Net income	($255,000)	($125,000)				($243,000)
	Dividends declared	$145,000	$45,000		$27,000	$18,000	$145,000
	Retained Earnings, 12/31	($1,466,000)	($820,000)				($1,335,600)
	Cash	$193,000	$100,000				$293,000
	Accounts receivable	$404,000	$650,000		$35,000		$1,019,000
	Inventory	$630,000	$560,000		$26,400		$1,163,600
	Investment in Keller	$1,116,000	$0		$1,116,000		$0
	Land	$210,000	$630,000		$95,000		$745,000
	Building and Equipment	$520,000	$540,000				$1,060,000
	Customer list			$340,000	$17,000		$323,000
	Total assets	$3,073,000	$2,480,000				$4,603,600
	Liabilities	($777,000)	($960,000)	$35,000			($1,702,000)
	Common Stock	($830,000)	($600,000)	$600,000			($830,000)
	APIC		($100,000)	$100,000			$0
	Retained Earnings, 12/31	($1,466,000)	($820,000)				($1,335,600)
	Non-controlling interest, 1/1				$712,000		$0
	Non-controlling interest, 12/31					$736,000	($736,000)
	Total liabilities and SE	($3,073,000)	($2,480,000)	$2,051,800	$2,051,800		($4,603,600)
	Unrealized gain in unsold inventory in 2017
	Selling price	$390,000
	Cost	$234,000
	Profit	$156,000
	Gross margin	40%
	Unsold Inventory	$78,000
	Unrealized gain in unsold inventory in 2017	$23,400
	Unrealized gain in unsold inventory in 2018
	Selling price	$440,000
	Cost	$308,000
	Profit	$132,000
	Gross margin	30%
	Unsold Inventory	$88,000
	Unrealized gain in unsold inventory in 2018	$26,400
	Journal entry to defer the intra entity gain as of the beginning of the year
	Retained Earnings	$23,400
	Cost of Goods sold		$23,400
	Journal entry to defer the intra entity gain as of the end of the year
	Cost of goods sold	$26,400
	Inventory		$26,400
	Profit on land
	Selling price	$170,000
	Book Value	$75,000
	Profit on land	$95,000
	Profit on land is debited to retained earnings
	NCI, 1/1/2018
	Common Stock	$600,000
	APIC	$100,000
	Retained earnings, 1/1/2018	$740,000
	Excess of fair value over book value	$340,000
	Total	$1,780,000
	NCI, 40%	$712,000
	NCI, 31/12/2018
	NCI,1/1/2018	$712,000
	Add: Profit for 2018	$42,000
	Less: Dividend	($18,000)
	NCI, 31/12/2018	$736,000
b	If building had sold instead of land
	Cost of building	$380,000
	Book value	$180,000
	Accumulated depreciation	$200,000
	Selling price	$340,000
	Less: Book value	$180,000
	Gain on sale of land	$160,000
	Consolidation entry in the year of sale
	Gain on sale of land	$160,000
	Building	$40,000
	Accumulated depreciation		$200,000
	Consolidation entry in 2018
	Gain on sale of land	$160,000
	Building	$40,000
	Depreciation expense	$4,000
	Accumulated depreciation		$204,000
	Difference in depreciation
	Depreciation at original cost	$38,000
	Depreciation at selling cost	$34,000
	Depreciation charged less by	$4,000