Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,957,000 in cash. Allison intends to

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,957,000 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 $2,020,000 including retained earnings of $1,520,000.

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

Consideration transferred $ 5,957,000
Mathias stockholders' equity 2,020,000
Excess fair over book value $ 3,937,000
to unpatented technology (8-year remaining life) $ 832,000
to patents (10-year remaining life) 2,540,000
to increase long-term debt (undervalued, 5-year remaining life) (120,000 ) 3,252,000
Goodwill $ 685,000

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:

Income Dividends
2020 $ 472,500 $ 25,000
2021 945,000 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.

Allison Mathias
Income Statement
Sales $ (6,480,000 ) $ (3,920,000 )
Cost of goods sold 4,556,000 2,513,000
Depreciation expense 895,000 289,000
Amortization expense 440,000 109,000
Interest expense 63,000 64,000
Equity earnings in Mathias (611,000 ) 0
Net income $ (1,137,000 ) $ (945,000 )
Statement of Retained Earnings
Retained earnings 1/1 $ (5,380,000 ) $ (1,967,500 )
Net income (above) (1,137,500 ) (945,000 )
Dividends declared 560,000 50,000
Retained earnings 12/31 $ (5,957,000 ) $ (2,862,500 )
Balance Sheet
Cash $ 81,000 $ 149,000
Accounts receivable 970,000 235,000
Inventory 1,740,000 805,000
Investment in Mathias 6,631,500 0
Equipment (net) 3,740,000 2,066,000
Patents 105,000 0
Unpatented technology 2,145,000 1,470,000
Goodwill 439,000 0
Total assets $ 15,851,500 $ 4,725,000
Accounts payable $ (694,500 ) $ (162,500 )
Long-term debt (1,000,000 ) (1,200,000 )
Common stock (8,200,000 ) (500,000 )
Retained earnings 12/31 (5,957,000 ) (2,862,500 )
Total liabilities and equity $ (15,851,500 ) $ (4,725,000 )

Required:

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

Prepare a worksheet to determine the consolidated values to be reported on Allisons financial statements. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Consolidated Totals column should be entered with a minus sign.)

2. determine the annual excess fair over book value amortization

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information System

Authors: James A. Hall

7th Edition

978-1439078570, 1439078572

More Books

Students also viewed these Accounting questions

Question

Where do emotions come from? What function do they serve?

Answered: 1 week ago