Chapter 3 - HW Problems (3-25 & 3-31) 3-26 On January 3, 2016. Persolf Corporation acquired all of the outstanding voting stock of Sea for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an , Inc., in exchange independent accounting system. Both companies have December 31 fiscal year-ends. At the ac tion date, Sea Cliff's stockholders' equity was $2,500,000 including retained earnings of $1.700.000 Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These emad fair values that differed from their values on Sea 's books as follows: Asset Book Value Fair Value Remaining Useful Life Patented technology $140,000 $2.240,000 7 years Computer software $ 60,000 $1.260.000 12 years Sea Cliff's remaining identifiable assets and liabilities had acquisition date book was that dose approximated fair values. Since acquisition, no assets have been impaired. During the next three years. Sea reported the following income and dividends: 2016 2017 2018 Net Income $900.000 940,000 975,000 Dividends $150,000 150,000 150.000 December 31, 2018, financial statements for each company appear below. Parentheses indicate credit balances Dividends declared were paid in the same period. 25.000 Income Statement Persoff Sea Clu Revenues $ (2.720,000) $12,250,000) Cost of goods sold 1,350,000 870,000 Depreciation expense 275,000 380,000 Amortization expense 370,000 Equity earnings in Sea Cliff 1575.000) Net income S (1,300,000) $ (975,000) Statement of Retained Earnings Retained earnings 1/1 $ 7,470,000) 53,240,000) Net income (above) (1,300,000) 1975,000) Dividends declared __600.000 150.000 Retained earnings 12/31 $ (8,170,000) $14,065,000) Balance Sheet Current assets $ 490,000 $375,000 Investment in Sea Cliff 7.165,000 -- Computer software 300,000 45,000 800,000 80,000 Patented technology Goodwill 100,000 -- 1.835.000 4.500.000 Equipment $ 10,690,000 $5,000,000 Total assets Liabilities S (520,000) $ (135.000) (2,000,000) (800,000 Common stock 18.120.000 14.065.000 Retained earnings 12/31 $(10,690,000) 515.000.000) Total liabilities and equity Net Income............. Retained earnings 1/1/18.... Net income........ Dividends declared.......... Retained earnings 12/31/18 $ (5,000,000) (1,560,000) 560,000 $ 6,000,000 $ 433,000 1.210,000 1,235,000 3,200,000 5,572,000 $(1,350,000) (190,000) 50,000 $(1,490,000) $ 165,000 200,000 1,500,000 2,040,000 1,800,000 Cash ... Accounts receivable Inventory........... Investment in Strata ..... Buildings (net) ......... Licensing agreements.. Goodwill.... Total assets ........ Accounts payable.. Long-term debt ....... Common stock Retained earnings 12/31/18... Total llabilities and OE. 350,000 $ 12,000,000 $ (300,000) (2,700,000) (3,000,000) (6,000,000) $(12,000,000) .. $5,705,000 $ (715,000) (2,000,000) (1,500,000) (1,490,000) $(5,705,000 SLOCK ..... a. Prepare a worksheet to consolidate the financial information for these two companies
