Gibson and Davis

| June 6, 2016

Question
Following are the individual financial statements for Gibson and Davis for the year ending
December 31, 2015:
Gibson Davis
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (600,000) $ (300,000)
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 140,000
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174,000 60,000
Dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,000 ) –0–
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (150,000 ) $ (100,000 )
Retained earnings, 1/1/15 . . . . . . . . . . . . . . . . . . . . . . . . . $ (700,000) $ (400,000)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,000) (100,000)
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 40,000
Retained earnings, 12/31/15 . . . . . . . . . . . . . . . . . . . . . $ (770,000 ) $ (460,000 )
Cash and receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 248,000 $ 100,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 190,000
Investment in Davis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,000 –0–
Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,000 600,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 400,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,200,000 $ 1,290,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) (490,000)
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (630,000) (340,000)
Retained earnings, 12/31/15 . . . . . . . . . . . . . . . . . . . . . . . (770,000 ) (460,000 )
Total liabilities and stockholders’ equity $(2,200,000 ) $(1,290,000 )
Gibson acquired 60 percent of Davis on April 1, 2015, for $528,000. On that date, equipment owned by Davis (with a 5-year remaining life) was overvalued by $30,000. Also on that date, the fair value of the 40 percent noncontrolling interest was $352,000. Davis earned income evenly during the year but declared the $40,000 dividend on November 1, 2015.
a. Prepare a consolidated income statement for the year ending December 31, 2015.
b. Determine the consolidated balance for each of the following accounts as of December 31, 2015:
Goodwill Buildings (net)
Equipment (net) Dividends Declared
Common Stock

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