3-26 (Algo) (LO 3-1, 3-3a) On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $9,097,000 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 $2,604,500 including retained earnings of $1,804,500. 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: Asset Patented technology Computer software Book Value $187,500 $ 88,500 Fair Value $ 2,952,500 $ 3,568,500 Remaining Useful Life 7 years 12 years 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: 2019 2020 2021 Net Income $ 901,900 Dividends 941,900 976,900 $ 150,000 150,000 150,000 December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity Persoff Sea Cliff $(2,345,000) $ (2,910,000) 1,443,100 322,500 427,000 (291,900) $ (1,009,300) $ (7,565,000) (1,009,300) 600,000 $ (7,974,300) $ 575,500 9,412,700 395,000 914,000 138,000 1,901,500 $ 13,336,700 $ (3,362,400) (2,000,000) (7,974,300) $(13,336,700) 906,100 418,000 44,000 0 $ (976,900) $(3,348,300) (976,900) 150,000 $(4,175,200) $ 422,500 0 73,500 118,000 0 4,690,000 $ 5,304,000 $ (328,800) (800,000) (4,175,200) $(5,304,000) Note: Parentheses indicate a credit balance. PERSOFF CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year December 31, 2021 Consolidation Entries Consolidated Persoff Sea Cliff Debit Credit Totals Accounts Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared $ (2,910,000) $ (2,345,000) 1,443,100 322,500 427,000 (291,900) 906,100 418,000 44,000 $ (1,009,300) $ (976,900) (7,565,000) (3,348,300) (1,009,300) 600,000 (976,900) 150,000 Retained earnings 12/31 $ (7,974,300) $ (4,175,200) Balance Sheet Current assets $ 575,500 $ 422,500 Investment in Sea Cliff 9,412,700 Computer software 395,000 73,500 Patented technology 914,000 118,000 Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity 914,000 118,000 138,000 0 4,690,000 1,901,500 $ 13,336,700 $ 5,304,000 (3,362,400) (328,800) (2,000,000) (800,000) (7,974,300) (4,175,200) $(13,336,700) $ (5,304,000) $ < Required C Required D 7,974,300 0