Question
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,223,500 in cash. Allison intends to
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,223,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathiass stockholders equity was $2,085,000 including retained earnings of $1,585,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,223,500 Mathias stockholders' equity 2,085,000 Excess fair over book value $ 4,138,500 to unpatented technology (8-year remaining life) $ 936,000 to patents (10-year remaining life) 2,670,000 to increase long-term debt (undervalued, 5-year remaining life) (185,000 ) 3,421,000 Goodwill $ 717,500 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 $ 448,125 $ 25,000 2021 896,250 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 $ (6,740,000 ) $ (3,985,000 ) Cost of goods sold 4,738,000 2,555,250 Depreciation expense 960,000 328,000 Amortization expense 472,500 128,500 Interest expense 89,000 77,000 Equity earnings in Mathias (549,250 ) 0 Net income $ (1,029,750 ) $ (896,250 ) Statement of Retained Earnings Retained earnings 1/1 $ (5,510,000 ) $ (2,008,125 ) Net income (above) (1,029,750 ) (896,250 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,979,750 ) $ (2,854,375 ) Balance Sheet Cash $ 100,500 $ 168,500 Accounts receivable 1,035,000 267,500 Inventory 1,870,000 870,000 Investment in Mathias 6,798,875 0 Equipment (net) 3,870,000 2,111,500 Patents 137,500 0 Unpatented technology 2,210,000 1,535,000 Goodwill 484,500 0 Total assets $ 16,506,375 $ 4,952,500 Accounts payable $ (1,326,625 ) $ (398,125 ) Long-term debt (1,000,000 ) (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,979,750 ) (2,854,375 ) Total liabilities and equity $ (16,506,375 ) $ (4,952,500 ) Required: Determine the annual excess fair over book value amortization. Prepare a worksheet to determine the consolidated values to be reported on Allisons
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