On January $3,2022,$ Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Incorporated, in exchange for $$8,445,000$ in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December $31$ fiscal year$-$ends. At the acquisition date, Sea Cliff$$s stockholders$$ equity was $$2,582,500$ including retained earnings of $$1,782,500.$

Persoff pursued the acquisition, in part, to utilize Sea Cliff$$s technology and computer software. These items had fair values that differed from their values on Sea Cliff$$s books as follows:

Asset Book Value Fair Value Remaining Useful Life

Patented technology $ $177,500$ $ $2,802,5007$ years

Computer software $ $82,500$ $ $3,082,50012$ years

Sea Cliff$$s remaining identifiable assets and liabilities had acquisition$-$date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends:

Year Net Income Dividends

$2022$ $ $901,500$ $ $150,000$

$2023941,500150,000$

$2024976,500150,000$

December $31,2024,$ financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Items Persoff Sea Cliff

Income Statement

Revenues $ $(2,870,000)$ $ $(2,325,000)$

Cost of goods sold $1,423,500898,500$

Depreciation expense $312,500410,000$

Amortization expense $415,00040,000$

Equity earnings in Sea Cliff $(351,500)0$

Net income $ $(1,070,500)$ $ $(976,500)$

Statement of Retained Earnings

Retained earnings $1/1$ $ $(7,545,000)$ $ $(3,325,500)$

Net income $($above$)(1,070,500)(976,500)$

Dividends declared $600,000150,000$

Retained earnings $12/31$ $ $(8,015,500)$ $ $(4,152,000)$

Balance Sheet

Current assets $ $557,500$ $ $412,500$

Investment in Sea Cliff $8,939,5000$

Computer software $375,00067,500$

Patented technology $890,000110,000$

Goodwill $130,0000$

Equipment $1,887,5004,650,000$

Total assets $ $12,779,500$ $ $5,240,000$

Liabilities $ $(2,764,000)$ $ $(288,000)$

Common stock $(2,000,000)(800,000)$

Retained earnings $12/31(8,015,500)(4,152,000)$

Total liabilities and equity $ $(12,779,500)$ $ $(5,240,000)$

Required:

Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff.

Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December $31,2024.$

Determine Persoff's December $31,2024,$ Investment in Sea Cliff's balance.

Prepare a worksheet to determine the consolidated values to be reported on Persoff$$s financial statements.

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