Allison Corporation acquired all of the outstanding voting stock of Mathias, Incorporated, on January 1, 2023, in exchange for $5,875,000 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 $2,000,000 including retained earnings of $1,500,000.

At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:

Consideration transferred$ 5,875,000

Mathias stockholders' equity2,000,000

Excess fair over book value$ 3,875,000

to unpatented technology (8-year remaining life)$ 800,000

to patents (10-year remaining life)2,500,000

to increase long-term debt (undervalued, 5-year remaining life)(100,000) 3,200,000

Goodwill$ 675,000

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:

YearI ncome Dividends

2023$ 480,000 $ 25,000

2024 960,000 50,000

ItemsAllisonMathiasIncome StatementSales$ (6,400,000)$ (3,900,000)Cost of goods sold4,500,0002,500,000Depreciation expense875,000277,000Amortization expense430,000103,000Interest expense55,00060,000Equity earnings in Mathias(630,000)0Net income$ (1,170,000)$ (960,000)Statement of Retained EarningsRetained earnings, 1/1$ (5,340,000)$ (1,955,000)Net income (above)(1,170,000)(960,000)Dividends declared560,00050,000Retained earnings, 12/31$ (5,950,000)$ (2,865,000)Balance SheetCash$ 75,000$ 143,000Accounts receivable950,000225,000Inventory1,700,000785,000Investment in Mathias6,580,0000Equipment (net)3,700,0002,052,000Patents95,0000Unpatented technology2,125,0001,450,000Goodwill425,0000Total assets$ 15,650,000$ 4,655,000Accounts payable$ (500,000)$ (90,000)Long-term debt(1,000,000)(1,200,000)Common stock(8,200,000)(500,000)Retained earnings, 12/31(5,950,000)(2,865,000)Total liabilities and equity$ (15,650,000)$ (4,655,000)

Required:

a. Determine the annual excess fair over book value amortization.

b. Prepare a worksheet to determine the consolidated values to be reported on Allisons financial statements.