Let's break down the requirements step by step. --- **a. Prepare a consolidated income statement for the year ending December 31, 2024.** ### **Step 1: Combine Gibson and Davis' income statement items** - **Sales:** $(600,000) + (300,000) = $(900,000) - **COGS:** 300,000 + 140,000 = 440,000 - **Operating Expenses:** 174,000 + 60,000 = 234,000 - **Dividend Income:** Gibson's dividend income from Davis must be eliminated in consolidation, as it is an intercompany transaction (so, $0 consolidated). #### **Consolidated Net Income (before adjustments):** - **Net Income (Gibson):** $(150,000) - **Net Income (Davis):** $(100,000) - **Total:** $(250,000) ### **Step 2: Adjust for Purchase Price Allocation and Equipment Overvaluation** - Equipment owned by Davis was overvalued by $30,000 (5-year life), so annual excess depreciation = $30,000 / 5 = **$6,000** (reduce consolidated income by $6,000). ### **Step 3: Eliminate Intercompany Dividend** - Gibson recognized $24,000 as dividend income from Davis; this is eliminated in consolidation. ### **Step 4: Consolidated Net Income Calculation** \[ \begin{align*} \text{Gibson Net Income} & = (150,000) \\ \text{Davis Net Income} & = (100,000) \\ \text{Less: Excess Depreciation} & = (6,000) \\ \text{Eliminate Intercompany Dividend} & = 24,000 \\ \\ \text{Consolidated Net Income} & = (150,000) + (100,000) - (6,000) + 24,000 \\ & = (232,000) \end{align*} \] #### **Consolidated Income Statement:** | Account | Amount ($) | |-----------------|------------| | Sales | 900,000 | | Cost of Goods Sold | (440,000) | | Operating Expenses | (234,000) | | Excess Depreciation | (6,000) | | Net Income | (232,000) | --- **b. Determine consolidated balances as of December 31, 2024:** ### **Goodwill:** - **Purchase Price for 60%**: $528,000 - **Fair value of NCI (40%)**: $352,000 - **Total Fair Value**: $528,000 + $352,000 = $880,000 - **Book Value of Davis at acquisition (4/1/24):** - Common Stock: $340,000 - Retained earnings (1/1/24): $400,000 - Less: Equipment overvaluation: $30,000 - Total Book Value: $340,000 + $400,000 - $30,000 = $710,000 - **Goodwill:** $880,000 - $710,000 = **$170,000** ### **Equipment (net):** - Gibson: $400,000 - Davis: $400,000 - Less: Excess depreciation for 9 months (April - December): \( \frac{6,000}{12} \times 9 = 4,500 \) - **Consolidated Equipment (net):** $400,000 + $400,000 - $4,500 = **$795,500** ### **Common Stock:** - Only Gibson's common stock remains in consolidation: **$630,000** ### **Buildings (net):** - Gibson: $524,000 - Davis: $600,000 - **Consolidated Buildings (net):** $524,000 + $600,000 = **$1,124,000** ### **Dividends Declared:** - Gibson: $80,000 - Davis: $40,000 (eliminate intercompany dividend: $24,000 recognized by Gibson) - **Consolidated Dividends Declared:** $80,000 (Gibson) + $40,000 (Davis) - $40,000 (Davis dividends to Gibson) = **$80,000** --- ## **Summary Table:** | Account | Consolidated Balance | |---------------------|-------------------------| | **Goodwill** | $170,000 | | **Equipment (net)** | $795,500 | | **Common stock** | $630,000 | | **Buildings (net)** | $1,124,000 | | **Dividends declared** | $80,000 | --- If you need the full consolidated balance sheet or further breakdown, let me know!