The individual financial statements for Gibson Company and Keller Company for the year ending December 31, 2021, follow. Gibson acquired a 60 percent interest in Keller on January 1, 2020, in exchange for various considerations totaling $1,050,000. At the acquisition date, the fair value of the noncontrolling interest was $700,000 and Keller’s book value was $1,400,000. Keller had developed internally a customer list that was not recorded on its books but had an acquisition-date fair value of $350,000. This intangible asset is being amortized over 20 years. Gibson uses the partial equity method to account for its investment in Keller.
Gibson sold Keller land with a book value of $80,000 on January 2, 2020, for $180,000. Keller still holds this land at the end of the current year.
Keller regularly transfers inventory to Gibson. In 2020, it shipped inventory costing $280,000 to Gibson at a price of $400,000. During 2021, intra-entity shipments totaled $450,000, although the original cost to Keller was only $292,500. 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 $40,000 at the end of 2021.
See individual statements attached.
Instructions
How would the consolidation entires in requirement a) have been differed if Gibson had sold a building on January 2, 2020 with a $185,000 book value (cost $390,000) to Keller for $350,000 instead of land as the problem reports. Assuming that the building had a 10-year remaining life at the date of transfer.
*I had previously asked requirement A, so it has been completed in a different question I asked*
Prepare entry *TA to defer the intra-entity gain as of the beginning of the year.
Prepare entry ED to remove the excess depreciation for the current year created by the transfer price.
Extracted text: Gibson Keller Company $(1,050,000) 750,000 130,000 (72,000) $ (242,000) Company $ (750,000) 550,000 80,000 Sales Cost of goods sold Operating expenses Equity in earnings of Keller $ (120,000) $ (745,000) (120,000) 50,000 Net income Retained earnings, 1/1/21 Net income (above) $(1,366,000) (242,000) 150,000 Dividends declared Retained earnings, 12/31/21 $(1,458,000) $ (815,000) 194,000 406,000 640,000 1,119,000 220,000 521,000 Cash $ $ 80,000 660,000 570,000 Accounts receivable Inventory Investment in Keller Land 640,000 550,000 $ 2,500,000 $ (985,000) (610,000) (90,000) (815,000) $(2,500,000) Buildings and equipment (net) $ 3,100,000 $ (802,000) (840,000) Total assets Liabilities Common stock Additional paid-in capital Retained earnings, 12/31/21 (1,458,000) $(3,100,000) Total liabilities and equities