On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $8,282,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with arn independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,577,000 including retained earnings of $1,777,000 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: Remaining Asset Book Value Fair Value Useful Life Patented technology Computer software 81,000 2,961,000 12 years $175,000 $2,765,000 7 years Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fain values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: Net Income Dividends 2016 $901,400 $150,000 150,000 150,000 2017 941,400 2018 976,400 December 31, 2018, financial statements for each company appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period. Persoff Sea Cliff Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared (2,860,000) (2,320,000) 1,418,600 310,000 412,000 896,600 408,000 39,000 (366,400) $ (1,085,800) (976,400) (3,319,800) 150,000 (8,025,800) (4,146,200) $553,000 $410,000 66,000 (7,540,000) (1,085, 800) 600,000 (976,400) Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity 108,000 4,640,000 $ 12,640,200 5,224,000 8,821,200 370,000 884,000 128,000 1,884,000 $(2,614,400) (277,800) (800, 000) (2,000,000) (8,025,800) 4,146,200) (12,640,200) $(5,224,000) Note: Parentheses indicate a credit balance
