Question

The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2021, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2020, in exchange for various considerations totaling $330,000. At the acquisition date, the fair value of the noncontrolling interest was $220,000 and Keller’s book value was $430,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $120,000. This intangible asset is being amortized over 20 years. Gibson uses the partial equity method to account for its investment in Keller.

Gibson sold Keller land with a book value of $55,000 on January 2, 2020, for $110,000. Keller still holds this land at the end of the current year.

Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $110,500 to Gibson at a price of $170,000. During 2021, intra-entity shipments totaled $220,000, although the original cost to Keller was only $132,000. 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 2021.

	Gibson Company				Keller Company
Sales	$	(820,000	)		$	(520,000	)
Cost of goods sold		520,000				320,000
Operating expenses		120,000				35,000
Equity in earnings of Keller		(99,000	)			0
Net income	$	(279,000	)		$	(165,000	)
Retained earnings, 1/1/21	$	(1,136,000	)		$	(630,000	)
Net income (above)		(279,000	)			(165,000	)
Dividends declared		125,000				35,000
Retained earnings, 12/31/21	$	(1,290,000	)		$	(760,000	)
Cash	$	171,000			$	80,000
Accounts receivable		360,000				430,000
Inventory		410,000				340,000
Investment in Keller		792,000				0
Land		130,000				410,000
Buildings and equipment (net)		498,000				320,000
Total assets	$	2,361,000			$	1,580,000
Liabilities	$	(461,000	)		$	(380,000	)
Common stock		(610,000	)			(340,000	)
Additional paid-in capital		0				(100,000	)
Retained earnings, 12/31/21		(1,290,000	)			(760,000	)
Total liabilities and equities	$	(2,361,000	)		$	(1,580,000	)

(Note: Parentheses indicate a credit balance.)

1. Prepare a worksheet to consolidate the separate 2021 financial statements for Gibson and Keller.

2. How would the consolidation entries in requirement (a) have differed if Gibson had sold a building on January 2, 2020, with a $70,000 book value (cost of $160,000) to Keller for $120,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

Answer 1