Question

House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation schedule:

Consideration transferred for 70% interest in Wilson					$	766,500
Fair value of the 30% noncontrolling interest						328,500
Wilson business fair value					$	1,095,000
Wilson book value						744,000
Excess fair value over book value					$	351,000
Assignments to adjust Wilson’s assets to fair value:
To buildings (20-year remaining life)	$	82,000
To equipment (4-year remaining life)		(27,400	)
To franchises (10-year remaining life)		83,000				137,600
To goodwill (indefinite life)					$	213,400

House regularly buys inventory from Wilson at a markup of 25 percent more than cost. House's purchases during 2016 and 2017 and related ending inventory balances follow:

Year	Intra-Entity Purchases	Remaining Intra-Entity Inventory— End of Year (at transfer price)
2016	$120,000	$40,000
2017	150,000	60,000

On January 1, 2018, House and Wilson acted together as co-acquirers of 80 percent of Cuddy Company's outstanding common stock. The total price of these shares was $312,800, indicating neither goodwill nor other specific fair-value allocations. Each company put up one-half of the consideration transferred. During 2018, House acquired additional inventory from Wilson at a price of $284,000. Of this merchandise, 45 percent is still held at year-end.

	House Corporation				Wilson Company				Cuddy Company
Sales and other revenues	$	(1,026,720	)		$	(783,400	)		$	(361,800	)
Cost of goods sold		590,000				317,000				195,000
Operating expenses		276,000				274,000				92,800
Income of Wilson Company		(134,680	)			0				0
Income of Cuddy Company		(29,600	)			(29,600	)			0
Net income	$	(325,000	)		$	(222,000	)		$	(74,000	)
Retained earnings, 1/1/18	$	(881,000	)		$	(598,000	)		$	(241,000	)
Net income (above)		(325,000	)			(222,000	)			(74,000	)
Dividends declared		100,000				96,000				50,000
Retained earnings, 12/31/18	$	(1,106,000	)		$	(724,000	)		$	(265,000	)
Cash and receivables	$	22,220			$	219,000			$	88,000
Inventory		428,000				386,000				102,300
Investment in Wilson Company		948,780				0				0
Investment in Cuddy Company		166,000				166,000				0
Buildings		418,000				334,000				216,000
Equipment		314,000				194,000				92,200
Land		274,000				330,000				19,500
Total assets	$	2,571,000			$	1,629,000			$	518,000
Liabilities	$	(645,000	)		$	(595,000	)		$	(103,000	)
Common stock		(820,000	)			(310,000	)			(150,000	)
Retained earnings, 12/31/18		(1,106,000	)			(724,000	)			(265,000	)
Total liabilities and equities	$	(2,571,000	)		$	(1,629,000	)		$	(518,000	)

Note: Parentheses indicate a credit balance.

Using the three companies' following financial records for 2018, prepare a consolidation worksheet. The partial equity method based on separate company incomes has been applied to each investment. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

HOUSE CORPORATION AND CONSOLIDATED SUBSIDIARIES Consolidation Worksheet December 31, 2018 Consolidation Entries Noncontrolling Consolidated Accounts House Corporation Wilson Company Cuddy Company Debit Credit Interest Balance Sales and other revenue (1,026,720) (783,400) (361,800) Cost of goods sold 590,000 317,000 195,000 Operating expenses 276,000 274,000 92,800 Income of Wilson Company (134,680) Income of Cuddy Company (29,600) (29,600) Net income (325,000) (222,000) (74,000) Consolidated net income 0 Net income attributable to noncontrolling interest (Wilson) Net income attributable to noncontrolling interest (Cuddy) Net income attributable to House Corporation 0 Retained earnings, 1/1/18: House Corporation (881,000) Wilson Company (598,000) Cuddy Company (241,000) Net income (325,000) (222,000) (74,000) Dividends declared House Corporation 100,000 Wilson Company 96,000 Cuddy Company 50,000 Retained earnings, 12/31/18 (1,106,000) (724,000) (265,000) 0 Cash and receivables 22,220 219,000 88,000 Inventory 428,000 386,000 102,300 Investment in Wilson Company 948,780 Investment in Cuddy Company 166,000 166,000 Buildings 418,000 334,000 216,000 Equipment 314,000 194,000 92,200 Land 274,000 330,000 19,500 Goodwill Franchise contracts Total assets 2,571,000 1,629,000 518,000 0 Liabilities (645,000) (595,000) (103,000) Noncontrolling interest in Cuddy Noncontrolling interest in Wilson Noncontrolling interest in subsidiary companies 0 Common stock (820,000) (310,000) (150,000) Retained earnings (above) (1,106,000) (724,000) (265,000) Total liabilities and equities (2,571,000) (1,629,000) (518,000) 0 0 0

Answer 1

Solution

House Corporation has been operating profitably since its creation in 1960. At the beginning of 2016, House acquired a 70 percent ownership in Wilson Company. At the acquisition date, House prepared the following fair-value allocation.

Income of Wilson Company	-134,680	0	0	134,680
Income of Cuddy Company	-29,600	-29,600	0	59,200
Net Income	-325,000	-222,000	-74,000
Consolidated net income							-311,440
No controlling interest in Wilson net income						-45,000	45,000
No controlling interest in cuddy net income						-14,000	14,000
To House Corporation							-266,440
Retained earnings, 1.1.11
House Corporation	-881,000			$11,200			-869,800
Wilson Company		-598,000		$12,000			-
				$578,000
Cuddy Company			-241,000	150,000			-
Net Income	-325,000	-222,000	-$74,000				-266,440
Dividends paid
House Corporation	100,000						100,000
Wilson Company		90,000			67,200	$28,800	-
Cuddy Company			$50,000		40,000	$10,000	-
Retained earnings, 12/31/07	-969,000	-652,000	-170,000				-1,036,240