Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1,

2017, 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 equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000

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

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:

Income Dividends

2017 $480,000 $25,000

2018 960,000 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.

Income Statement Allison Mathias

Sales (6,400,000) (3,900,000)

Cost of goods sold 4,500,000 2,500,000

Depreciation expense 875,000 277,000

Amortization expense 430,000 103,000

Interest expense 55,000 60,000

Equity earnings in Mathias (630,000) 0

Net income (1,170,000) (960,000)

Statement of Retained Earnings

Retained earnings 1/1 (5,340,000) (1,955,000)

Net income (above) (1,170,000) (960,000)

Dividends declared 560,000 50,000

Retained earnings 12/31 (5,950,000) (2,865,000)

Balance Sheet

Cash 75,000 143,000

Accounts receivable 950,000 225,000

Inventories 1,700,000 785,000

Investment in Mathias 6,580,000 0

Equipment (net) 3,700,000 2,052,000

Patents 95,000 0

Unpatented technology 2,125,000 1,450,000

Goodwill 425,000 0

Total assets 15,650,000 4,655,000

Accounts 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)

A. Record Allison Co. Journal Entries to account for consideration transferred

B. Construct a Goodwill Schedule