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On January 1, 2020, Paloma Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of San Marco Company. The consideration transferred by Paloma provided a reasonable basis for assessing the total January 1, 2020, fair value of San Marco Company. At the acquisition date, San Marco reported the following owners' equity amounts in its balance sheet: Common stock $400,000 Additional paid-in capital 60,000 Retained earnings 265,000 In determining its acquisition offer, Paloma noted that the values for San Marco's recorded assets and liabilities approximated their fair values. Paloma also observed that San Marco had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on San Marco's books. Paloma expected both cost and revenue synergies from the combination. At the acquisition date, Paloma prepared the following fair-value allocation schedule: Fair value of San Marco Company $1,900,000 725,000 Book value of San Marco Company 1,175,000 Excess fair value 800,000 to customer base (10-year remaining life) $375,000 to goodwill.... At December 31, 2021, the two companies report the following balances: Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of San Marco Net income Retained earnings, 1/1 Net income Dividends declared Retained earnings, 12/31. Current assets Investment in San Marco Buildings and equipment Copyrights Total assets Accounts payable Notes payable Common stock Additional paid-in capital Retained earnings, 12/31 Total liabilities and equities Paloma San Marco $(1,843,000) $ (675,000) 1,100,000 322,000 125,000 120,000 275,000 11,000 27,500 7,000 (121,500) -0- (437,000) $ (215,000) $(2.625,000) $ (395,000) (437,000) (215,000) 350,000 25,000 $(2,712,000) $ (585,000) $ 1,204,000 $ 430,000 1,854,000 -0- 931,000 863,000 950,000 107,000 $ 4,939,000 $ 1,400,000 $ (485,000) $ (200,000) (542,000) (155,000) (900,000) (400,000) (300,000) (60,000) (2,712,000) (585,000) $(4,939,000) $(1,400,000) At year-end, there were no intra-entity receivables or payables. a. Determine the consolidated balances for this business combination as of December 31, 2021. Consolidation Entry Common Stook Additional paid in capial Retained Earnings Beginning Investment in Sub Company @ 90% interest NCI Investment in Sub 10% interest To eliminate beginning stockholder's equity accounts of the subsidiary along with book value portion of investment. Consolidation Entry A Customer Base Goodwill Investment in Sub Company NCl investment in Sub Company To recognize unamortized excess fair value and to allocate the unamortized fair value to the non controlling interest. Goodwill is attributable proportionately to controlling and noncontrolling interests. Consolidation Entry! Equity in income of Sub Investment in Sub Company To eliminate the impact of intercompany income accrued by Paloma Consolidation Entry D Investment in Sub Dividends Paid To eliminate the impact of intercompany dividend payments made by the subsidiary to parent and NCI. Consolidation Entry E Amortization Expense Customer Base To recognize excess amortization of fair value adjustments are individually recorded during the current period. Paloma and San Marco Company Consolidated Worksheet For the year ended Dec. 31, 2021 Non Controlling Consolidated Interest Lotals Accounts Paloma San Marco Debit Credit INCOME STATEMENT Revenue Cost of Goods Sold Depreciation Expense Amortization Expense Interest Expense Equity in Income of Steele $1,843,000 (1,100,000) (125,000) (275,000) (27,500) $121,500 $675,000 (322,000) (120,000) (11,000) (7,000) E I 437,000 215,000 Separate Company Net Income Consolidated Net Income Non Controlling interest in Steele Income Net Income to Controlling Interest STATEMENT OF RETAINED EARNINGS Retained Earnings, 1/1 Net Income Dividends Paid Retained Earnings, 12/31 S $2,625,000 437,000 (350,000) $2,712,000 $395,000 215,000 (25,000) $585,000 D BALANCE SHEET ASSETS Current Assets $1,204,000 $430,000 Investment in Sub Company 1,854,000 D S I E Customer Base Building and equipment Copyrights Goodwill Total Assets 0 931,000 950,000 0 863,000 107,000 $4,939,000 $1,400,000 LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Accounts Payable $485,000 Notes Payable 542,000 SHAREHOLDER'S EQUITY NClin Sub Company $200,000 155,000 S S S Common Stook Additional Paid in Capital Retained Earnings, 12/31 Total Liabilities and Shareholder's Equ 900,000 300,000 2,712,000 $4,939,000 400,000 60,000 585,000 $1,400,000