The individual financial statements for Gibson Company andKeller 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 $600,000. At theacquisition date, the fair value of the noncontrolling interest was$400,000 and Keller’s book value was $800,000. Keller had developedinternally a customer list that was not recorded on its books buthad an acquisition-date fair value of $200,000. This intangibleasset is being amortized over 20 years.
Gibson sold Keller land with a book value of $50,000 on January2, 2017, for $110,000. Keller still holds this land at the end ofthe current year.
Keller regularly transfers inventory to Gibson. In 2017, itshipped inventory costing $175,000 to Gibson at a price of$250,000. During 2018, intra-entity shipments totaled $300,000,although the original cost to Keller was only $195,000. In each ofthese years, 20 percent of the merchandise was not resold tooutside parties until the period following the transfer. Gibsonowes Keller $55,000 at the end of 2018.
| Gibson Company | | Keller Company |
| Sales | $ | (900,000 | ) | | $ | (600,000 | ) |
| Cost of goods sold | | 600,000 | | | | 400,000 | |
| Operating expenses | | 200,000 | | | | 75,000 | |
| Equity in earnings of Keller | | (75,000 | ) | | | 0 | |
| Net income | $ | (175,000 | ) | | $ | (125,000 | ) |
| Retained earnings, 1/1/18 | $ | (1,216,000 | ) | | $ | (670,000 | ) |
| Net income (above) | | (175,000 | ) | | | (125,000 | ) |
| Dividends declared | | 120,000 | | | | 75,000 | |
| Retained earnings, 12/31/18 | $ | (1,271,000 | ) | | $ | (720,000 | ) |
| Cash | $ | 179,000 | | | $ | 60,000 | |
| Accounts receivable | | 376,000 | | | | 510,000 | |
| Inventory | | 490,000 | | | | 420,000 | |
| Investment in Keller | | 864,000 | | | | 0 | |
| Land | | 210,000 | | | | 490,000 | |
| Buildings and equipment (net) | | 506,000 | | | | 400,000 | |
| Total assets | $ | 2,625,000 | | | $ | 1,880,000 | |
| Liabilities | $ | (664,000 | ) | | $ | (640,000 | ) |
| Common stock | | (690,000 | ) | | | (420,000 | ) |
| Additional paid-in capital | | 0 | | | | (100,000 | ) |
| Retained earnings, 12/31/18 | | (1,271,000 | ) | | | (720,000 | ) |
| Total liabilities and equities | $ | (2,625,000 | ) | | $ | (1,880,000 | ) |
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(Note: Parentheses indicate a credit balance.)
Prepare a worksheet to consolidate the separate 2018 financialstatements for Gibson and Keller.
How would the consolidation entries in requirement (a) havediffered if Gibson had sold a building with a $110,000 book value(cost of $240,000) to Keller for $200,000 instead of land, as theproblem reports? Assume that the building had a 10-year remaininglife at the date of transfer.
