3. Following are financial statements for Moore Company and Kirby Company for 20
ID: 2417010 • Letter: 3
Question
3. Following are financial statements for Moore Company and Kirby Company for 2015.
Moore Kirby
Sales (720,000) (540,000)
Cost of goods sold 450,000 360,000
Operating and interest expense 90,000 138,000
Net income (180,000) (42,000)
Retained earnings, 1/1/15 (891,000) (495,000)
Net income (180,000) (42,000)
Dividends paid 117,000 6,000
Retained earnings, 12/31/15 (954,000) (531,000)
Cash and receivables 195,300 162,000
Inventory 201,600 144,000
Investment in Kirby 591,300 -
Equipment (net) 540,000 378,000
Buildings 900,000 585,000
Accumulated depreciation-buildings (90,000) (180,000)
other assets 180,000 90,000
Total assets 2,518,200 1,179,000
Liabilities (1,024,200) (513,000)
common stock (180,000) (36,000)
Additional paid-in capital (360,000) (99,000)
Retained earnings, 12/31/15 (954,000) (531,000)
Total liabilities and equity (2,518,200) (1,179,000)
Moore purchased 90% of Kirby on January 1, 2014, for $585,000 in cash. On that date, the 10% noncontrolling interest was assessed to have a $65,000 fair value. As of January 1, 2014, Kirby had common stock $36,000, additional paid-in capital 99,000, and retained earnings $423,000. Also at the acquisition date, Kirby held equipment (4-year remaining life) whose fair value is higher than the book value by $18,000, and an interest-bearing liability (5-year remaining life) whose fair value is lower than book value by $36,000. The rest of the excess fair value was assigned to goodwill.
Moore uses the initial value method to account for the investment in Kirby.
During 2014, Kirby earned a net income of $72,000 and paid no dividends.
Each year, Kirby sells inventory to Moore with a gross profit rate of 20%. Intra-entity sales were $144,000 in 2014 and $180,000 in 2015. On December 31, 2014, 30% of the 2014 transfers were still on hand and, on December 31, 2015, 40% of the 2015 transfers remained.
Moore sold a building to Kirby on January 2, 2014. It had originally cost Moore $100,000 but had $86,000 in accumulated depreciation at the time of this transfer. The sale price was $26,000 in cash. At that time, the building has a five-year remaining life.
Required: Prepare consolidation entries for December 31, 2015
Explanation / Answer
Dear Student,
I have already solved the similar type of problem expect some number are change otherwise everything same (Concept).
Question:
Following are financial statements for Moore Company and Kirby Company for 2015:
Moore Kirby
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (800,000) $ (600,000)
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . 500,000 400,000
Operating and interest expenses . . . . . . . . . . . . . . 100,000 160,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (200,000) $ (40,000)
(continued)
Consolidated Financial Statements—Intra-Entity Asset Transactions 245
• Moore purchased 90 percent of Kirby on January 1, 2014, for $657,000 in cash. On that
Date, the 10 percent no controlling interest was assessed to have a $73,000 fair value. Also
At the acquisition date, Kirby held equipment (4-year remaining life) undervalued on the
fi nancial records by $20,000 and interest-bearing liabilities (5-year remaining life) overvalued
By $40,000. The rest of the excess fair value over book value was assigned to previously
Unrecognized brand names and amortized over a 10-year life.
• During 2014 Kirby earned a net income of $80,000 and declared no dividends.
• Each year Kirby sells Moore inventory at a 20 percent gross profit t rate. Intra-entity sales were
$145,000 in 2014 and $160,000 in 2015. On January 1, 2015, 30 percent of the 2014 transfers
Were still on hand and, on December 31, 2015, 40 percent of the 2015 transfers remained.
• Moore sold Kirby a building on January 2, 2014. It had cost Moore $100,000 but had
$90,000 in accumulated depreciation at the time of this transfer. The price was $25,000 in
Cash. At that time, the building had a 5-year remaining life.
Determine all consolidated balances either computationally or by using a worksheet.
Answer: PRELIMINARY COMPUTATIONS
a. Consideration transferred .................................... $585,000
Noncontrolling interest fair value........................... 65,000
Subsidiary fair value at acquisition-date ................. 650,000
Book value............................................................. (620,000)
Fair value in excess of book value .......................... $110,000 Annual Excess
Excess fair value assignments Life Amortizations
to equipment.................................................. 20,000 4 yrs. $5,000
to liabilities ...................................................... 40,000 5 yrs. 8,000
to brand names ............................................... 50,000 10 yrs. 5,000
Totals.............................................................. -0- $18,000
Determination of Subsidiary Book Value on 1/1/09
Book Value, 1/1/10 (based on stockholders' equity accounts)........ $700,000
Eliminate Net Income – 2009 ..................................................................... (80,000)
Eliminate Dividends – 2009 ........................................................................ -0-
Book Value, 1/1/09 .............................................................................. $620,000
Beginning inventory unrealized gross profit, 12/31/09 (Upstream)
Ending Inventory ($160,000 × 40%) ............................................................ $64,000
Markup (given) ......................................................................................... 20%
Unrealized Intercompany Gross profit, 12/31/09 ........................................ $12,800
Ending inventory unrealized gross profit, 12/31/10 (Upstream)
Ending Inventory ($145,000 × 30%) ............................................................ $43,500
Markup (given) ......................................................................................... 20%
Unrealized Intercompany Gross profit, 12/31/10 ........................................ $8,700
Building unrealized gross profit, 1/2/09 (Downstream)
Transfer Price ............................................................................................ $25,000
Book Value ............................................................................................... 10,000
Unrealized Gross profit ............................................................................. $15,000
Annual Excess Depreciation
Annual Depreciation Based on Book Value ($10,000/5 years)............. $2,000
Annual Depreciation Based on Transfer Price
($25,000/ 5 years) ................................................................................ 5,000
Excess DepreciationEach Year ................................................................... $3,000
Adjust to Building to return to historical cost at 1/1/10
Consolidation
Transfer Price Historical Cost Adjustment
Buildings $25,000 $100,000 $75,000
Accumulated Depreciation
(1/1/09 balance after 1
more year of depreciation) 5,000 92,000 87,000
Consolidated Totals
Moore's book value .................................................................................. $500,000
Kirby's book value ..................................................................................... 400,000
Eliminate intercompany transfers .............................................................. (160,000)
Realized gross profit deferred in 2009......................................................... (8,700)
Deferral of 2010 unrealized gross profit ...................................................... 12,800
Cost of goods sold ..................................................................................... $744,100
Reported income for 2010 ..................................................................................... $40,000
Realized gross profit deferred in 2009 ........................................................ 8,700
Deferral of 2010 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
Moore's Reported Balance, 1/1/10 ................................................ $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 12/31/09 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, 1/1/10 .................................................. $1,025,970
Dividends Paid = $130,000 (parent balance only)
Retained Earnings, 12/31/10 = $1,115,080 (the beginning balance plus controlling interest share of consolidated net income less dividends paid)
Cash and Receivables = $397,000 (add the two book values)
Inventory = $371,200 (add the two book values and defer the $12,800 ending unrealized gross profit)
Investment in Kirby = -0- (eliminated for consolidation purposes)
Equipment (Net) = $1,030,000 (add the two book values adjusted for excess allocation and amortization)
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)
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)
Other Assets = $300,000 (add the two book values)
Brand Names = $40,000 (the original $50,000 allocation less two years of amortization at $5,000 per year)
Total Assets = $3,479,200 (summation of the consolidated totals)
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])
NCI 12/31/10 = $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)
Common Stock = $600,000 (parent balance only)
Retained Earnings, 12/31/10 = $1,115,080 (computed above)
Total Liabilities and Equities = $3,479,200 (summation of consolidated balances).
The same consolidation balances can be derived by setting up a worksheet and utilizing the following entries:
CONSOLIDATION ENTRIES
Entry *G
Retained Earnings, 1/1/10 (Kirby) ....................................... 8,700
Cost of Goods Sold ...................................................... 8,700
(To recognize 2009 deferred gross profit as income in 2010)
Entry *TA
Building............................................................................. 75,000
Retained earnings, 1/1/10 (Moore) .................................... 12,000
Accumulated Depreciation .......................................... 87,000
(To adjust 1/1/10 balance to historical cost figures)
Entry *C
Investment in Kirby ........................................................... 47,970
Retained Earnings, 1/1/10 (Moore) .............................. 47,970
(To convert from initial value to equity method based on the following computation)
Increase in subsidiary's book value during prior years
(income of $80,000)..................................................... $80,000
Excess amortization for 2009.............................................. (18,000)
Deferral of 12/31/09 unrealized gross profit........................ (8,700)
Realized increase in subsidiary's book value........................ $53,300
Ownership ........................................................................ 90%
Conversion to equity method adjustment.......................... $47,970
S Common Stock (Kirby) ....................................................... 150,000
Retained Earnings, 1/1/10 as adjusted (Kirby)..................... 541,300
Investment in Kirby (90%) ........................................... 622,170
Noncontrolling Interest in Kirby (10%) .......................... 69,130
(To eliminate subsidiary's beginning stockholders' equity accounts and recognize beginning noncontrolling interest balance)
A Liabilities ........................................................................... 32,000
Equipment ........................................................................ 15,000
Brand Names .................................................................... 45,000
Investment in Kirby ..................................................... 82,800
Noncontrolling Interest in Kirby (10%) .......................... 9,200
(To recognize unamortized balance of excess allocations as of 1/1/10. Figures have been reduced by one year of amortization)
Entry I (the subsidiary paid no dividends so no adjustment needed)
E Operating and interest expense......................................... 18,000
Liabilities ..................................................................... 8,000
Equipment................................................................... 5,000
Brand names ............................................................... 5,000
(To recognize excess amortization expenses for current year)
Tl Sales ................................................................................. 160,000
Cost of Goods Sold ...................................................... 160,000
(To eliminate intercompany transfers for 2010)
G Cost of Goods Sold ............................................................ 12,800
Inventory .................................................................... 12,800
(To defer ending unrealized inventory gross profit)
ED Accumulated Depreciation ................................................ 3,000
Depreciation Expense ................................................. 3,000
(To adjust depreciation for current year created by transfer of building)
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