Question

Problem 5-35 (LO 5-1, 5-2, 5-3, 5-4, 5-5, 5-6, 5-7)

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 $960,000. At the acquisition date, the fair value of the noncontrolling interest was $640,000 and Keller’s book value was $1,280,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $320,000. This intangible asset is being amortized over 20 years.

Gibson sold Keller land with a book value of $65,000 on January 2, 2017, for $150,000. Keller still holds this land at the end of the current year.

Keller regularly transfers inventory to Gibson. In 2017, it shipped inventory costing $259,000 to Gibson at a price of $370,000. During 2018, intra-entity shipments totaled $420,000, although the original cost to Keller was only $273,000. 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 $70,000 at the end of 2018.

	Gibson Company				Keller Company
Sales	$	(1,020,000	)		$	(720,000	)
Cost of goods sold		720,000				520,000
Operating expenses		100,000				65,000
Equity in earnings of Keller		(81,000	)			0
Net income	$	(281,000	)		$	(135,000	)
Retained earnings, 1/1/18	$	(1,336,000	)		$	(730,000	)
Net income (above)		(281,000	)			(135,000	)
Dividends declared		135,000				80,000
Retained earnings, 12/31/18	$	(1,482,000	)		$	(785,000	)
Cash	$	191,000			$	80,000
Accounts receivable		400,000				630,000
Inventory		610,000				540,000
Investment in Keller		1,047,000				0
Land		190,000				610,000
Buildings and equipment (net)		518,000				520,000
Total assets	$	2,956,000			$	2,380,000
Liabilities	$	(664,000	)		$	(955,000	)
Common stock		(810,000	)			(540,000	)
Additional paid-in capital		0				(100,000	)
Retained earnings, 12/31/18		(1,482,000	)			(785,000	)
Total liabilities and equities	$	(2,956,000	)		$	(2,380,000	)

(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 $170,000 book value (cost of $360,000) to Keller for $320,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer.

Prepare a worksheet to consolidate the separate 2018 financial statements for Gibson and Keller. (Do not round intermediate calculations. 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.)

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GIBSON AND KELLER Consolidation Worksheet For the Year Ending December 31, 2018 Consolidation Entries Accounts Gibson Keller Debit Credit Noncontrolling Interest Consolidated Totals Sales $(1,020,000) $(720,000) Cost of goods sold 720,000 520,000 Operating expenses 100,000 65,000 Equity in earnings of Keller (81,000) 0 0 Separate company net income $(281,000) $(135,000) Consolidated net income $0 To noncontrolling interest To Gibson Company $0 Retained earnings, 1/1—Gibson $(1,336,000) Retained earnings, 1/1—Keller (730,000) Net income (281,000) (135,000) Dividends declared 135,000 80,000 Retained earnings, 12/31 $(1,482,000) $(785,000) $0 Cash $191,000 $80,000 Accounts receivable 400,000 630,000 Inventory 610,000 540,000 Investment in Keller 1,047,000 Land 190,000 610,000 Buildings and equipment (net) 518,000 520,000 Customer list Total assets $2,956,000 $2,380,000 $0 Liabilities $(664,000) $(955,000) Common stock (810,000) (540,000) Additional paid-in capital (100,000) Retained earnings, 12/31 (1,482,000) (785,000) NCI in Keller, 1/1 NCI in Keller, 12/31 Total liabilities and equity $(2,956,000) $(2,380,000) $0 $0 $0

How would the consolidation entries in requirement (a) have differed if Gibson had sold a building with a $170,000 book value (cost of $360,000) to Keller for $320,000 instead of land, as the problem reports? Assume that the building had a 10-year remaining life at the date of transfer. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

No	Transaction	Accounts	Debit	Credit
1	1	Buildings
		Retained earnings
		Accumulated depreciation
2	2	Accumulated depreciation
		Operating expenses

Answer 1

GIBSON AND KELLER
Consolidation Worksheet
For the Year Ending December 31, 2018
			Consolidation Entries
Accounts	Gibson	Keller	Debit	Credit	Noncontrolling Interest	Consolidated Totals
Sales	$(1,020,000)	$(720,000)	288000.00	-
Cost of goods sold	7,20,000	5,20,000	208000
Operating expenses	1,00,000	65,000	26000
Equity in earnings of Keller	-81,000	0
Separate company net income	$(281,000)	$(135,000)	54000
Consolidated net income						416000
To noncontrolling interest						54000
To Gibson Company						362000
Retained earnings, 1/1—Gibson	$(1,336,000)					$(1,336,000)
Retained earnings, 1/1—Keller		-7,30,000				preacquisition should be reduced from the cost of acquisition
Net income	-2,81,000	-1,35,000				shared among the both the Holding and the non controlling interest
Dividends declared	1,35,000	80,000	32000			this is also preacquisition dividend so should be reduced from the cost of acquisition
Retained earnings, 12/31	$(1,482,000)	$(785,000)				$0
Cash	$191,000	$80,000	32000			239000
Accounts receivable	4,00,000	6,30,000	252000			7,78,000
Inventory	6,10,000	5,40,000	2160000			926000	in inventory there is unearned profit it should be reduced from the carrying amount of inventory
Investment in Keller	10,47,000					-
Land	1,90,000	6,10,000				715000	land shuld be valued at the carrying value of holding company in cfs
Buildings and equipment (net)	5,18,000	5,20,000				1038000
Customer list						320000
Total assets	$2,956,000	$2,380,000				$0
Liabilities	$(664,000)	$(955,000)				1237000
Common stock	-8,10,000	-5,40,000	-216000			-11,34,000
Additional paid-in capital		-1,00,000	-40000			-60000
Retained earnings, 12/31	-14,82,000	-7,85,000	314000			-14,01,000
NCI in Keller, 1/1
NCI in Keller, 12/31
Total liabilities and equity	$(2,956,000)	$(2,380,000)	$0	$0
	Inventory
		Unsold stock on 1/1/18	74000	i.e370000*40/100
		here 30% on sales is the margin
			so reserve	22200
		unsold stock on31/12/18	84000
		here margin is 35%
		hence stock reserve	29400
		Stock in hand out of interholding transfer			84000
		thero fore value of stock =		602800
		stock of keller		3,24,000
				9,26,800