Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,977,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathiass stockholders equity was $2,025,000 including retained earnings of $1,525,000.
At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:
Part B
$5,977,500 2,025,000 $3,952,500 Consideration transferred Mathias stockholders' equity Excess fair over book value to unpatented technology (B-year remaining life) to patents (10-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 840,000 2,550,000 (125, 000) 3,265,000 $ 687,500 Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends: 2020 2021 Income $ 470,625 941,250 Dividends $ 25,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Mathias Allison $ (6,500,000) 4,570,000 900,000 442,500 65,000 (606,250) $ (1,128,750) $ (3,925,000) 2,516,250 292,000 110,500 65,000 0 $ (941,250) $ (5,390,000) (1,128,750) 560,000 $ (5,958, 750) $(1,970, 625) (941, 250) 50,000 $(2,861,875) Income Statement Sales Cost of goods sold Depreciation expense Amortization expense Interest expense Equity earnings in Mathias Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Cash Accounts receivable Inventory Investment in Mathias Equipment (net) Patents Unpatented technology Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity $ 82,500 975,000 1,750,000 6,644,375 3,750,000 107,500 2,150,000 442,500 $ 15,901,875 $ (743, 125) (1,000,000) (8,200,000) (5,958, 750) $(15,901,875) $ 150,500 237,500 810,000 0 2,069,500 0 1,475,000 0 $4,742,500 $ (180, 625) (1,200,000) (500,000) (2,861,875) $(4,742,500) Required: a. Determine the annual excess fair over book value amortization. b. Prepare a worksheet to determine the consolidated values to be reported on Allison's financial statements. Complete this question by entering your answers in the tabs below. Required A Required B Determine the annual excess fair over book value amortization. Annual excess fair over book value amortization Required Required B> ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2021 Consolidation Entries Accounts Allison Mathias Debit Credit Consolidated Totals Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity earnings in Mathias Net income $ 6,500,000) S (3.925,000) 4,570,000 2,516,250 900,000 292.000 442,500 110,500 65,000 65,000 (606,250) S (1,128,750) S (941,250) Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 (5,390,000) (1,128,750) 560,000 S (5,958,750) (1,970,625) (941,250) 50,000 S (2,861,875) Balance Sheet Cash Accounts receivable Inventories Investment in Mathias Equipment (net) Patents Unpatented technology Goodwill Total assets S 82,500 S 150,500 975,000 237.500 1,750,000 810,000 6,644,375 3,750,000 2,069,500 107,500 2,150,000 1,475,000 442,500 $ 15,901,875 S 4,742,500 Accounts payable Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity (743,125) (180,625) (1,000,000) (1,200,000) (8.200,000) (500,000) (5,958,750) (2.861,875) S (15,901,875) S (4.742,500) $ 17,357,500
