Question
On January 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,227,500 in cash and securities. On
On January 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,227,500 in cash and securities. On the acquisition date, Stylene had the following balance sheet:
Cash | $ | 31,200 | Accounts payable | $ | 1,246,700 |
Accounts receivable | 143,500 | ||||
Inventory | 182,000 | ||||
Equipment (net) | 1,560,000 | Common stock | 800,000 | ||
Trademarks | 964,000 | Retained earnings | 834,000 | ||
Total assets | $ | 2,880,700 | Total liabilities and equity | $ | 2,880,700 |
At the acquisition date, the book values of Stylenes assets and liabilities were generally equivalent to their fair values except for the following assets:
Asset | Book Value | Fair Value | Remaining Useful Life | ||
Equipment | $ | 1,560,000 | $ | 1,690,000 | 8 years |
Customer lists | 0 | 214,000 | 4 years | ||
Trademarks | 964,000 | 1,026,500 | indefinite | ||
During the next two years, Stylene has the following income and dividends in its own separately prepared financial reports to its parent.
Net Income | Dividends | |||
2020 | $ | 188,000 | $ | 25,000 |
2021 | 530,000 | 45,000 | ||
Dividends are declared and paid in the same period. The December 31, 2021, separate financial statements for each company follow. Parentheses indicate credit balances.
Prestige | Stylene | ||||||
Income Statement | |||||||
Revenues | $ | (5,620,000 | ) | $ | (3,096,000 | ) | |
Cost of goods sold | 3,010,000 | 2,190,000 | |||||
Depreciation expense | 578,000 | 376,000 | |||||
Amortization expense | 152,000 | 0 | |||||
Equity earnings in Stylene | (460,250 | ) | 0 | ||||
Net income | $ | (2,340,250 | ) | $ | (530,000 | ) | |
Statement of Retained Earnings | |||||||
Retained earnings 1/1 | $ | (3,250,000 | ) | $ | (997,000 | ) | |
Net income (above) | (2,340,250 | ) | (530,000 | ) | |||
Dividends declared | 150,000 | 45,000 | |||||
Retained earnings 12/31 | $ | (5,440,250 | ) | $ | (1,482,000 | ) | |
Balance Sheet | |||||||
Cash | $ | 594,000 | $ | 64,000 | |||
Accounts receivable | 856,000 | 102,000 | |||||
Inventory | 957,000 | 544,000 | |||||
Investment in Stylene | 2,736,000 | 0 | |||||
Equipment | 6,150,000 | 1,612,500 | |||||
Customer lists | 122,000 | 0 | |||||
Trademarks | 2,590,000 | 988,000 | |||||
Goodwill | 249,000 | 0 | |||||
Total assets | $ | 14,254,000 | $ | 3,310,500 | |||
Accounts payable | $ | (313,750 | ) | $ | (1,028,500 | ) | |
Common stock | (8,500,000 | ) | (800,000 | ) | |||
Retained earnings, 12/31 | (5,440,250 | ) | (1,482,000 | ) | |||
Total liabilities and equity | $ | (14,254,000 | ) | $ | (3,310,500 | ) | |
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Determine the fair value in excess of book value for Prestiges acquisition date investment in Stylene.
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Determine Prestige's December 31, 2021, Investment in Stylene balance.
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Prepare a worksheet to determine the balances for Prestiges December 31, 2021, consolidated financial statements
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