Problem 5-35 (LO 5-1, 5-2, 5-3, 5-4, 5-5, 5-6, 5-7) The individual financial sta
ID: 2342623 • Letter: P
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.
(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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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.)
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 )Explanation / Answer
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