On January 3, 2013, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,500,000 including retained earnings of $1,700,000.

Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:

.:.

Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends:

December 31, 2015, financial statements for each company appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period.

a. Construct Persoff’s acquisition-date fair-value allocation schedule for its investment in Sea Cliff.

b. Show how Persoff determined its Equity earnings in Sea Cliff balance for the year ended December 31, 2015.

c. Show how Persoff determined its December 31, 2015, Investment in Sea Cliff balance.

d. Prepare a worksheet to determine the consolidated values to be reported on Persoff’s financial statements.

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Remaining Useful Life Asset Book Value Fair Value Patented technology $140,000 $2,240,000 Computer software 7 years 60,000 $1,260,000 12 years Net Income Dividends 2013 2014 2015 $900,000 940,000 975,000 $150,000 150,000 150,000 Income Statement Persoff Sea Cliff Revenues Cost of goods sold Depreciation Amortization Equity earnings in Sea Cliff Net income (2,720,000) 1,350,000 275,000 370,000 (575,000) $(1,300,000) $(2,250,000) 870,000 380,000 25,000 $ (975,000) Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared (7,470,000) (1,300,000) 600,000 $ (8,170,000) $(3,240,000) (975,000) 150,000 Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets $(4,065,000) $ 490,000 7,165,000 300,000 800,000 100,000 1,835,000 10,690,000 $ 375,000 45,000 80,000 4,500,000 $5,000,000 Liabilities Common stock Retained earnings 12/31 Total liabilities and equity (520,000) (2,000,000) (8,170,000) $(10,690,000) (135,000) (800,000) (4,065,000) $(5,000,000)