Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,059,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias's stockholders' equity was $2,045,000 including retained earnings of $1,545,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: $6,059,500 2,045,000 $4,014,500 Consideration transferred Mathias stockholders' equity Excess fair over book value to unpatented technology (8-year remaining life) to patents (10-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 872,000 2,590,000 (145,000) 3,317,000 $ 697,500 Post-acquisition, 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: 2017 2018 Income $ 463, 125 926,250 Dividends $ 25,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2018, appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period. Individual financial statements for each company as of December 31, 2018, appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period. Allison Mathias $ (6,580,000) 4,626,000 920,000 452,500 73,000 (587,250) $ (1,095,750) $ (3,945, 000) 2,529,250 304,000 116,500 69,000 $ (926,250) $ (5, 430,000) (1,095, 750) 560,000 $ (5,965,750) $ (1,983, 125) (926,250) 50,000 $(2,859, 375) 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 $ 156,500 247,500 830,000 2,083,500 0 1,495,000 $ 88,500 995,000 1,790,000 6,695,875 3,790,000 117,500 2,170,000 456,500 $ 16,103,375 $ (937,625 ) $ (1,000,000) (8,200,000) (5,965, 750) $(16,103,375) $ 4,812,500 $ (253, 125) $(1,200,000) (500,000) (2,859,375) $ (4,812,500) ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Accounts Allison Mathias Debit Credit Consolidated Totals Income Statement $ (3,945,000) | 2,529,250 Revenues Cost of goods sold Depreciation expense Amortization expense $ (6,580,000) 4,626,000 920,000 452,500 73,000 (587,250) $ (1,095,750) 304,000 116,500 69,000 Interest expense Equity earnings in Mathias Net income $ (926,250) Statement of Retained Earnings Retained earnings 1/1 Net income (above) (5,430,000) (1,095,750) 560,000 | $ (5,965,750) (1,983,125) | (926,250) 50,000 $ (2,859,375)| Dividends declared Retained earnings 12/31 Balance Sheet Cash $ Accounts receivable 156,500 247,500 830,000 Inventories Investment in Mathias | $ 88,500 995,000 1,790,000 6,695,875 3,790,000 117,500 2,170,000 456,500 $ 16,103,375 Equipment (net) Patents 2,083,500 Unpatented technology 1,495,000 Goodwill Total assets $ 4,812,500 Accounts payable Long-term debt Common stock (937,625) (1,000,000) (8,200,000) (5,965,750)| $(16,103,375) (253,125) (1,200,000) (500,000) (2,859,375)| $ (4,812,500) Retained earnings 12/31 Total liabilities and equity $ 0 $ 0 $
