Following are financial statements for Moore Company and Kirby Company for 2018
ID: 2581441 • Letter: F
Question
Following are financial statements for Moore Company and Kirby Company for 2018 Moore Kirby Sales Cost of goods sold Operating and interest expenses $ (800,000) (600,000) 500,000 100,000 400,000 160,000 Net income (200,000) $ (40,000) Retained earnings, 1/1/18 Net income Dividends declared $ (990,000) $(550,000) (40,000) (590,000) 160,000 (200,000) 130,000 (1,060,000) $ 217,000 Retained earnings, 12/31/18 Cash and receivables Inventory Investment in Kirby Equipment (net) Buildings Accumulated depreciation-buildings Other assets $ 180,000 224,000 657,000 600,000 420,000 650,000 (200,000) 100,000 1,000,000 (100,000) 200,000 $1,310,000 Total assets Liabilities Common stock Retained earnings, 12/31/18 $2,798,000 $ (1,138,000) $(570,000) (600,000) (150,000) (1,060,000(590,000) $ (2,798,000) Total liabilities and equity (1,310,000)Explanation / Answer
Solution:-
Adjustments to Convert Initial Value to Equity Method:
Increase in subsidiary's book value during prior years $80,000
Excess fair value amortization (18,000)
Deferral of 12/31/17 unrealized gross profit (subsidiary's prior income was overstated) (8,700)
Realized increase in book value 53,300
Ownership 90%
Equity Accrual
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Sr. No. Consolidated balance Explanation 1. Sales and Other Income $1,240,000 add the two book values and eliminate the intercompany transfers 2. Cost of Goods Sold: Moore's book value $500,000 Kirby's book value 400,000 Eliminate intercompany transfers (160,000) Realized gross profit deferred in 2017 (8,700) Deferral of 2018 unrealized gross profit 12,800 Cost of goods sold $744,100 3. Operating and Interest Expense $275,000 add the two book values and include $18,000 amortization for current year but eliminate $3,000 excess depreciation from asset transfer 4. Noncontrolling Interest in Subsidiary’s Income $1,790 impact of inventory transfers is included because they were upstream but building transfer is omitted because it was downstream Reported income for 2018 $40,000 Realized gross profit deferred in 2017 8,700 Deferral of 2018 unrealized gross profit (12,800) Realized income of subsidiary $35,900 Excess fair value amortization (18,000) Adjusted subsidiary net income 17,900 Outside Ownership 10% Noncontrolling Interest $1,790 5. Consolidated Net Income $220,900 consolidated sales less consolidated cost of goods sold, expenses, and noncontrolling interest To noncontrolling interest $1,790 (above) To controlling interest $219,110 6. Retained Earnings, 1/1/18 $1,025,970 because the parent uses the initial value method, its retained earnings must be adjusted for changes in subsidiary's book value, excess amortizations, and the impact of unrealized gross profits in previous years Moore's Reported Balance, 1/1/18 $990,000 Impact of Building Transfer (parent's income was over- stated by the $15,000 gain but has been reduced by one prior year of excess depreciation) (12,000)Adjustments to Convert Initial Value to Equity Method:
Increase in subsidiary's book value during prior years $80,000
Excess fair value amortization (18,000)
Deferral of 12/31/17 unrealized gross profit (subsidiary's prior income was overstated) (8,700)
Realized increase in book value 53,300
Ownership 90%
Equity Accrual
47,970 Retained Earnings, 1/1/18 $1,025,970 7. Dividends Paid $130,000 parent balance only 8. Retained Earnings, 12/31/18 $1,115,080 the beginning balance plus controlling interest share of consolidated net income less dividends paid 9. Cash and Receivables $397,000 add the two book values 10. Inventory $371,200 add the two book values and defer the $12,800 ending unrealized gross profit 11. Investment in Kirby 0 eliminated for consolidation purposes 12. Equipment (Net) $1,030,000 add the two book values adjusted for excess allocation and amortization 13 Buildings $1,725,000 add the two book values and add the $75,000 impact to return to historical cost as computed above for transfer 14. Accumulated Depreciation $384,000 add the two book values plus adjustment to historical cost ($87,000 at beginning of year less $3,000 excess depreciation for current year 15. Other Assets $300,000 add the two book values 16. Brand Names $40,000 the original $50,000 allocation less two years of amortization at $5,000 per year 17. Total Assets $3,479,200 summation of the consolidated totals 18. Liabilities $1,684,000 add the two book values and subtract the original allocation [$40,000] after two years of amortization [$8,000 per year] 19. NCI $80,120 10 percent of $691,300 adjusted beginning book value [$700,000 less $8,700 deferral of unrealized gross profit] plus $9,200 share of beginning unamortized excess fair value allocations plus $1,790 income share 20. Common Stock $600,000 parent balance only 21. Retained Earnings, 12/31/18 $1,115,080 computed above 22. Total Liabilities and Equities $3,479,200 summation of consolidated balances