On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $2,107,150 cash. On the acquisition date, GaugeRite
On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $2,107,150 cash. On the acquisition date, GaugeRite had the following balance sheet:
At the acquisition date, the following allocation was prepared:
Although at acquisition date Procise had expected $65,750 in future benefits from GaugeRites in-process research and development project, by the end of 2020 it was apparent that the research project was a failure with no future economic benefits.
On December 31, 2021, Procise and GaugeRite submitted the following financial statements for consolidation. There were no intra-entity payables on that date.
REQUIRED
a. Show how Procise derived its December 31, 2021, Investment in GaugeRite account balance.
b. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2021.
Cash Accounts receivable Land Equipment (net) Total assets 50,000 119,000 789,000 1,962,000 $2,920,000 Accounts payable Long-term debt Common stock Retained earnings Total liabilities and equity $ 169,000 976,000 1,074,000 701,000 $2,920,000 $ 2,107,150 1,775,000 332,150 Fair value of consideration transferred Book value acquired Excess fair value over book value To in-process research and development To equipment (8-year remaining life) To goodwill (indefinite life) $ 65,750 122,400 188,150 144,000 $ Sales Cost of goods sold Depreciation expense Other operating expenses Subsidiary income Net income Retained earnings 1/1/21 Net income Dividends declared Retained earnings 12/31/21 Cash Accounts receivable Inventory Investment in GaugeRite Land Equipment (net) Goodwill Procise $ (3,714,050) 1,755,000 325,000 216,250 (224,700) $ (1,642,500) $ (3,210,000) (1,642,500) 300,000 $ (4,552,500) $ 11,550 911,000 952,000 2,413,950 3,417,500 5,012,500 365,000 $ 13,083,500 $ (261,000) (3,120,000) (5,150,000) (4,552,500) $(13,083,500) GaugeRite $(1,299,000) 877,500 145,000 36,500 0 $ (240,000) $ (891,000) (240,000) 26,850 $(1,104,150) $ 71,150 225,000 416,000 0 792,000 1,915,000 0 $ 3,419,150 $ (438,000) (803,000) (1,074,000) (1,104,150) $ (3,419, 150) Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31/21 Total liabilities and equity Amounts Consideration transferred 1/1/20 Increase in GaugeRite's retained earnings to 1/1/21 In-process R&D write-off in 2020 Amortization 2020 Income 2021 Dividends declared 2021 Amortization 2021 Investment balance 12/31/21 $ 0 Accounts Debit Credit Consolidated Totals Sales Cost of goods sold Depreciation expense Other operating expenses Subsidiary income Net Income 12/31/21 Procise $ (3,714,050) 1,755,000 325,000 216,250 (224,700) $ (1,642,500) 12/31/21 GaugeRite $ (1,299,000) 877,500 145,000 36,500 0 $ 240,000 Retained earnings 1/1/21 Net Income Dividends declared Retained earnings 12/31/21 $ (3,210,000) (1,642,500) 300,000 $ (4,552,500) $ (891,000) (240,000) 26,850 $ (1,104,150) Cash $ Accounts receivable 71,150 225,000 416,000 0 Inventory Investment in GaugeRite Land Equipment (net) Goodwill $ 11,550 911,000 952,000 2,413,950 3,417,500 5,012,500 365,000 $ 13,083,500 792,000 1,915,000 0 Total assets $ 3,419,150 $ 14,324,500 Accounts payable Long-term debt Common stock-Procise Common stock-GaugeRite Retained earnings 12/31/21 Total liabilities and equity $ (261,000) $ (438,000) (3,120,000) (803,000) (5,150,000) (1,074,000) (4,552,500) (1,104,150) $(13,083,500) $ (3,419,150) $ 0 $ 0 $ 14,324,500
