LO 3-1, 3-3a hoy47821 ch03 091-156.indd 139 140 Chapter 3 26. On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition 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 items had fair values that differed from their values on Sea Cliff's books as follows: Asset Book Value Patented technology Computer software $140,000 $ 60,000 Fair Value $2,240,000 $1,260,000 Remaining Useful Life 7 years 12 years 09/30/19 04:43 PM Final PDF to printer Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: 2019 2020 2021 Net Income $900,000 940,000 975,000 Dividends $150,000 150,000 150,000 December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Persoff $ (2,720,000) 1,350,000 275,000 370,000 (575,000) $ (1,300,000) $ (7,470,000) (1,300,000) 600,000 $ (8,170,000) Sea Cliff $(2,250,000) 870,000 380,000 25,000 -0- $ (975,000) $(3,240,000) (975,000) 150,000 $(4,065,000) Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity -0- 45,000 $ 490,000 7,165,000 $ 375,000 300,000 800,000 100,000 1,835,000 $ 10,690,000 $ (520,000) (2,000,000) (8,170,000) $(10,690,000) 80,000 -0- 4,500,000 $5,000,000 $ (135,000) (800,000) (4,065,000) $(5,000,000) a. Construct Persoff's acquisition-date fair-value allocation schedule for its investment in Sea Cliff. b. Show how Persoff determined its Equity earnings in Sea Cliff balance for the year ended December 31, 2021. c. Show how Persoff determined its December 31, 2021, Investment in Sea Cliff balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements.