On January 1, 2014, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of San Marco Company. The consideration transferred by Palomaprovided a reasonable basis for assessing the total January 1, 2014, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners? equity amounts in its balance sheet: Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000

Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . .60,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265,000

In determining its acquisition offer, Paloma noted that the values for San Marco?s recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had devel- oped internally a customer base with an assessed fair value of $800,000 that was not reflected on San Marco?s books. Paloma expected both cost and revenue synergies from the combination. At the acquisition date, Paloma prepared the following fair-value allocation schedule: air value of San Marco Company. . . . . . . . . . . . . . . . . . . . . . . . . .$1,900,000

Book value of San Marco Company. . . . . . . . . . . . . . . . . . . . . . . .725,000 Excess fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,175,000

to customer base (10-year remaining life). . . . . . . . . . . . . . . . . .800,000

to goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .375,000

At December 31, 2015, the two companies report the following balances: (see attached screen shot) At year-end, there were no intra-entity receivables or payables.

a.Determine the consolidated balances for this business combination as of December 31, 2015.

****Please use the template attached for answers.

Consolidation Entry S Common Stock Additional paid in capial Retained Earnings Beginning Investment in Sub Company @ 90% interest NCI Investment in Sub @ 10% interest To eliminate beginning stockholder's equity accounts of the subsidiary along with book value portion of investment. Paloma and San marco Company Consolidated Worksheet For the year ended Dec. 31, 2015 Consolidation Entry A Customer Base Goodwill Investment in Sub Company NCI investment in Sub Company To recognize unamortized excess fair value and to allocate the unamortized fair value to the non controlling interest. Goodwill is attributable proportionately to controlling and noncontrolling interests. Consolidation Entry I Equity in income of Sub Investment in Sub Company To eliminate the impact of intercompany income accrued by Paloma Consolidation Entry D Investment in Sub Dividends Paid To eliminate the impact of intercompany dividend payments made by the subsidiary to parent and NCI. Consolidation Entry E Amortization Expense Customer Base To recognize excess amortization of fair value adjustments are individually recorded during the current period. Accounts INCOME STATEMENT Revenue Cost of Goods Sold Depreciation Expense Amortization Expense Interest Expense Equity in Income of Steele Paloma San Marco $1,843,000 (1,100,000) (125,000) (275,000) (27,500) $121,500 $675,000 (322,000) (120,000) (11,000) (7,000) 437,000 215,000 $2,625,000 437,000 (350,000) $395,000 215,000 (25,000) Retained Earnings, 12/31 $2,712,000 $585,000 BALANCE SHEET ASSETS Current Assets $1,204,000 $430,000 Investment in Sub Company 1,854,000 Total Assets 0 931,000 950,000 Credit E I Separate Company Net Income Consolidated Net Income Non Controlling interest in Steele Income Net Income to Controlling Interest STATEMENT OF RETAINED EARNINGS Retained Earnings, 1/1 Net Income Dividends Paid Customer Base Building and equipment Copyrights Goodwill Debit 0 863,000 107,000 S D D S A I A E A $4,939,000 $1,400,000 LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Accounts Payable Notes Payable SHAREHOLDER'S EQUITY NCI in Sub Company $485,000 542,000 $200,000 155,000 Common Stock Additional Paid in Capital Retained Earnings, 12/31 900,000 300,000 2,712,000 400,000 60,000 585,000 Total Liabilities and Shareholder's Equity $4,939,000 $1,400,000 S A S S Non Controlling Interest Consolidated Totals