Choco Inc. acquired all the outstanding common stock of Allie Co. on 1/1/19(t), for $640,000 cash. Following is the balance sheet for Allie Co. in 12/31/18 Book Value Fair Value FV-BV Current assets $100,000 $100,000 Building (30 years) 200,000 260,000 Equipment (10 years) 300,000 340,000 Total liabilities $(140,000) $(140,000) Net assets $460,000 $560,000 Common stock $(200,000) Additional paid in capital (150,000) Retained earnings 12/31/18 (110,000) Total Stockholders' equity $(460,000) Total liabilities and Stockholders' equity $(600,000) 12/31/19(t+1) 12/31/20(t+2) Net income Dividends Net income Dividends Allie (subsidiary) $(80,000) $12,000 $(65,000) $14,000 After Choco's acquisition, Allie Co. didn't have any changes in common stock and additional paid in capital. All numbers in () refer to credit balance. 1. Choco named any excess payment over fair value of Allie as Trademark (rather than a goodwill) with useful life of 20 years on 1/1/19, the acquisition date. Calculate Trademark on acquisition date 1/1/19. (5 points) 2. Calculate annual amortization of Building, Equipment and Trademark on 1/1/19(t), the acquisition date. (3 points) 3. If Choco use EQUITY METHOD to report about investment in Allie. 1) What is the Investment in Allie Co. balance on Choco's books as of 12/31/20(t+2)? (7 points) 2) What is the Equity in Allie Co. income balance on Choco's books as of 12/31/20(t+2), if the equity method has been applied? (2 points) 3) What is Allie's balance of retained earnings on 1/1/20(t+1)? (3 points) Choco Inc. acquired all the outstanding common stock of Allie Co. on 1/1/19(t), for $640,000 cash. Following is the balance sheet for Allie Co. in 12/31/18 Book Value Fair Value FV-BV Current assets $100,000 $100,000 Building (30 years) 200,000 260,000 Equipment (10 years) 300,000 340,000 Total liabilities $(140,000) $(140,000) Net assets $460,000 $560,000 Common stock $(200,000) Additional paid in capital (150,000) Retained earnings 12/31/18 (110,000) Total Stockholders' equity $(460,000) Total liabilities and Stockholders' equity $(600,000) 12/31/19(t+1) 12/31/20(t+2) Net income Dividends Net income Dividends Allie (subsidiary) $(80,000) $12,000 $(65,000) $14,000 After Choco's acquisition, Allie Co. didn't have any changes in common stock and additional paid in capital. All numbers in () refer to credit balance. 1. Choco named any excess payment over fair value of Allie as Trademark (rather than a goodwill) with useful life of 20 years on 1/1/19, the acquisition date. Calculate Trademark on acquisition date 1/1/19. (5 points) 2. Calculate annual amortization of Building, Equipment and Trademark on 1/1/19(t), the acquisition date. (3 points) 3. If Choco use EQUITY METHOD to report about investment in Allie. 1) What is the Investment in Allie Co. balance on Choco's books as of 12/31/20(t+2)? (7 points) 2) What is the Equity in Allie Co. income balance on Choco's books as of 12/31/20(t+2), if the equity method has been applied? (2 points) 3) What is Allie's balance of retained earnings on 1/1/20(t+1)? (3 points)
