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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 )

  1. Determine the fair value in excess of book value for Prestiges acquisition date investment in Stylene.

  2. Determine Prestige's December 31, 2021, Investment in Stylene balance.

  3. Prepare a worksheet to determine the balances for Prestiges December 31, 2021, consolidated financial statements

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