Question
On January 1, 2017, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,993,850 cash. On the acquisition date, GaugeRite
On January 1, 2017, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,993,850 cash. On the acquisition date, GaugeRite had the following balance sheet:
Cash | $ | 65,000 | Accounts payable | $ | 126,000 | |
Accounts receivable | 108,000 | Long-term debt | 1,003,000 | |||
Land | 772,000 | Common stock | 1,030,000 | |||
Equipment (net) | 1,905,000 | Retained earnings | 691,000 | |||
$ | 2,850,000 | $ | 2,850,000 | |||
At the acquisition date, the following allocation was prepared:
Fair value of consideration transferred | $ | 1,993,850 | |||
Book value acquired | 1,721,000 | ||||
Excess fair value over book value | 272,850 | ||||
To in-process research and development | $ | 63,250 | |||
To equipment (8-year remaining life) | 77,600 | 140,850 | |||
To goodwill (indefinite life) | $ | 132,000 | |||
Although at acquisition date Procise had expected $63,250 in future benefits from GaugeRites in-process research and development project, by the end of 2017, it was apparent that the research project was a failure with no future economic benefits.
On December 31, 2018, Procise and GaugeRite submitted the following trial balances for consolidation. There were no intra-entity payables on that date.
Procise | GaugeRite | ||||||
Sales | $ | (3,689,200 | ) | $ | (1,256,750 | ) | |
Cost of goods sold | 1,757,500 | 810,000 | |||||
Depreciation expense | 328,000 | 138,000 | |||||
Other operating expenses | 218,000 | 34,750 | |||||
Subsidiary income | (264,300 | ) | 0 | ||||
Net income | $ | (1,650,000 | ) | $ | (274,000 | ) | |
Retained earnings 1/1/18 | $ | (3,010,000 | ) | $ | (920,000 | ) | |
Net income | (1,650,000 | ) | (274,000 | ) | |||
Dividends declared | 100,000 | 25,750 | |||||
Retained earnings 12/31/18 | $ | (4,560,000 | ) | $ | (1,168,250 | ) | |
Cash | $ | 103,050 | $ | \10,750 | \ | ||
Accounts receivable | 846,000 | 222,000 | |||||
Inventory | 929,000 | 619,000 | |||||
Investment in GaugeRite | 2,388,450 | 0 | |||||
Land | 3,572,500 | 778,000 | |||||
Equipment (net) | 5,060,000 | 1,827,500 | |||||
Goodwill | 337,000 | 0 | |||||
Total assets | $ | 13,236,000 | $ | 3,457,250 | |||
Accounts payable | $ | (261,000 | ) | $ | (421,000 | ) | |
Long-term debt | $ | (3,265,000 | ) | $ | (838,000 | ) | |
Common stock | (5,150,000 | ) | (1,030,000 | ) | |||
Retained earnings 12/31/18 | (4,560,000 | ) | (1,168,250 | ) | |||
Total liabilities and equity | $ | (13,236,000 | ) | $ | (3,457,250 | ) | |
A. Show how Procise derived its December 31, 2018, Investment in GaugeRite account balance.
C. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2018.
Complete this question by entering your answers in the tabs below.
Required A
Required C
Show how Procise derived its December 31, 2018, Investment in GaugeRite account balance. (Amounts to be deducted should be indicated by a minus sign.)
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