Question

Please show each step and calculations!!!!

Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2018:

	Gibson				Davis
Sales	$	(821,000	)		$	(422,000	)
Cost of goods sold		382,000				211,000
Operating expenses		262,000				66,000
Dividend income		(24,000	)			0
Net income	$	(201,000	)		$	(145,000	)
Retained earnings, 1/1/18	$	(774,000	)		$	(485,000	)
Net income		(201,000	)			(145,000	)
Dividends declared		50,000				40,000
Retained earnings, 12/31/18	$	(925,000	)		$	(590,000	)
Cash and receivables	$	258,650			$	171,000
Inventory		540,000				235,000
Investment in Davis		595,350				0
Buildings (net)		547,000				661,000
Equipment (net)		444,000				432,000
Total assets	$	2,385,000			$	1,499,000
Liabilities	$	(830,000	)		$	(569,000	)
Common stock		(630,000	)			(340,000	)
Retained earnings, 12/31/18		(925,000	)			(590,000	)
Total liabilities and stockholders' equity	$	(2,385,000	)		$	(1,499,000	)

Gibson acquired 60 percent of Davis on April 1, 2018, for $595,350. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $39,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $396,900. Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2018.

Prepare a consolidated income statement for the year ending December 31, 2018.

Determine the consolidated balance for each of the following accounts as of December 31, 2018:

Goodwill

Equipment (net)

Common stock

Buildings (net)

Dividends declared

Please show each step and calculations!!!!

Answer 1

a.: Consolidated Income Statement
Particulars	Gibson	Davis	Adjustments	Total
Sales	-821000	-422000		-1243000
Cost of goods sold	382000	211000		593000
Operating expenses	262000	66000	5850	333850
Dividend income	-24000	-	24000	-
Net income	-201000	-145000	29850	-316150

Working Note:

Amortisation of excess of fair value of equipment.

Excess fair value= $39000

depreciation per year= 39000/5= 7800

depreciation for 9 months= 7800*9/12= 5850

b. Good will: on acquisition
Shareholder	Holding	Fair value
Parent	60%	595350
Non controlling interest	40%	396900
Fair value of subsidiary	100%	992250

Particulars	Amount
Fair value of entity(a)	992250
Total value without goodwill(b)	969000
Goodwill	23250

On Acquisition date , Value of subsidiary without goodwill
Particular	Amount
Common stock	$340,000.00
Additional paid in capital
Retained earnings	$590,000.00
Fair value adjustment:
Equipment	$39,000.00
Total	$969,000.00

Good will amount will not change at year end.

b. Equipment
Gibson	$444,000
Davis	$432,000
Fair value adjustment	$39,000
Fair value amortisation	-$5,850
Consolidation amount	$909,150

Common stock= 630000. subsidiary amount is eliminated in consolidation

Buildings= 547000+ 661000= 1208000

Dividends declared
Gibson	$50,000
Davis	$40,000
Gibson share of dividends in davis	-$24,000
Total	$66,000