Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias's stockholders' equity was $2,070,000 including retained earnings of $1,570,000.

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

Consideration transferred $6,162,000

Mathias stockholders' equity 2,070,000

Excess fair over book value $4,092,000

to unpatented technology (8-year remaining life) $912,000

to patents (10-year remaining life) 2,640,000

to increase long-term debt (undervalued, 5-year remaining life)(170,000)3,382,000

Goodwill $710,000

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. $453,750 $25,000

2018. 907,500 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.

Allison Mathias

Income Statement

Sales $(6,680,000) $(3,970,000)

Cost of goods sold 4,696,000 2,545,500

Depreciation expense 945,000 319,000

Amortization expense 465,000 124,000

Interest expense 83,000 74,000

Equity earnings in Mathias (563,500) 0

Net income $(1,054,500) $(907,500)

Statement of Retained Earnings

Retained earnings 1/1 $(5,480,000) $(1,998,750)

Net income (above) (1,054,500) (907,500)

Dividends declared 560,000 50,000

Retained earnings 12/31 $(5,974,500) $(2,856,250)

Balance Sheet

Cash $96,000 $164,000

Accounts receivable 1,020,000 260,000

Inventory 1,840,000 855,000

Investment in Mathias 6,760,250 0

Equipment (net) 3,840,000 2,101,000

Patents 130,000 0

Unpatented technology 2,195,000 1,520,000

Goodwill 474,000 0

Total assets $16,355,250 $4,900,000

Accounts payable $(1,180,750) $(343,750)

Long-term debt $(1,000,000) $(1,200,000)

Common stock (8,200,000) (500,000)

Retained earnings 12/31 (5,974,500) (2,856,250)

Total liabilities and equity $(16,355,250) $(4,900,000)

Required:

1. Determine Allison's December 31, 2018, Investment in Mathias balance.
2. Prepare worksheet to determine the consolidated values to be reported on Allison's financial statements.