Question

Following are the individual financial statements for Gibson and Davis for the year ending December 31, 2018:

	Gibson				Davis
Sales	$	(821,000	)		$	(422,000	)
Cost of goods sold		382,000				211,000
Operating expenses		262,000				66,000
Dividend income		(24,000	)			0
Net income	$	(201,000	)		$	(145,000	)
Retained earnings, 1/1/18	$	(774,000	)		$	(485,000	)
Net income		(201,000	)			(145,000	)
Dividends declared		50,000				40,000
Retained earnings, 12/31/18	$	(925,000	)		$	(590,000	)
Cash and receivables	$	258,650			$	171,000
Inventory		540,000				235,000
Investment in Davis		595,350				0
Buildings (net)		547,000				661,000
Equipment (net)		444,000				432,000
Total assets	$	2,385,000			$	1,499,000
Liabilities	$	(830,000	)		$	(569,000	)
Common stock		(630,000	)			(340,000	)
Retained earnings, 12/31/18		(925,000	)			(590,000	)
Total liabilities and stockholders' equity	$	(2,385,000	)		$	(1,499,000	)

Gibson acquired 60 percent of Davis on April 1, 2018, for $595,350. On that date, equipment owned by Davis (with a five-year remaining life) was overvalued by $39,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $396,900. Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2018.

Prepare a consolidated income statement for the year ending December 31, 2018.

Determine the consolidated balance for each of the following accounts as of December 31, 2018:

Goodwill

Equipment (net)

Common stock

Buildings (net)

Dividends declared

Answer 1

Consolidated Income statement
For the year ending December 31, 2018
Particulars	Amount
Sales	$1,137,500
Cost of Goods sold	$540,250
Operating expenses	$311,500
Net Income	$285,750
Noncontrolling interest (40%)	$43,500
Controlling interest	$242,250
Working note:
As the Gibson acquired the 60% interest in April, 2018, we will eliminate
income and expenses for first quarter in the consolidated income statement.
	For the year	First quarter	Remaining period
Sales	$422,000	$105,500	$316,500
Cost of Goods sold	$211,000	$52,750	$158,250
Operating expenses	$66,000	$16,500	$49,500
Net Income	$145,000	$36,250	$108,750
Consolidated balance for the following accounts as of Dec 31, 2018
Goodwill
Book value of Davis
Share capital	$340,000
Retained earnings, 1/1/2018	$485,000
Add: profit for first quarter	$36,250
Less: overvalued equipment	($39,000)
Book value on the date of acquisition	$822,250
Fair value of 60% investment	$595,350
Fair value of 40% noncontrolling interest	$396,900
Total fair value	$992,250
Less: Book value on the date of acquisition	($822,250)
Goodwill	$170,000
Equipment
Book value	$432,000
Less: overvaluation	($39,000)
Equipment (net) for Davis	$393,000
Equipment (net) for Gibson	$444,000
Consolidated balance	$837,000
Common Stock
Common stock of Gibson	$630,000
Buildings (net)
Buildings (net) for Gibson	$547,000
Buildings (net) for Davis	$661,000
Consolidated balance	$1,208,000
Dividends declared
Dividends declared by Gibson	$50,000
Consolidated balance	$50,000