Problem 3 (80 Points)

On January 1, 2020, ABC Company acquired a 55% interest in XYZ Company. ABC Company paid for the transaction with $3 million cash and 500,000 shares of ABC Company common stock (par value $1.00 per share). At the time of the acquisition, XYZ's book value was $16,970,000. On January 1, ABC Company stock had a market value of $14.90 per share and there was no control premium in this transaction. Any consideration transferred over book value is assigned to goodwill. XYZ Company had the following balances on January 1, 2020.

	Book	Fair
	Value	Value
Land	$1,700,000	$2,550,000
Buildings (seven-year remaining life)	2,700,000	3,400,000
Equipment (five-year remaining life)	3,700,000	3,300,000

For internal reporting purposes, ABC Company employed the equity method to account for this investment.

The following account balances are for the year ending December 31, 2020 for both companies.

	ABC	XYZ
	Company	Company
Revenues	$(298,000,000)	$(103,750,000)
Expenses	271,000,000	95,800,000
Equity in income of XYZ	( 4,361,500)	0
Net income	$( 31,361,500)	$( 7,950,000)
Retained earnings, January 1, 2020	$( 2,500,000)	$( 100,000)
Net income (above)	( 31,361,500)	( 7,950,000)
Dividends paid	5,000,000	3,000,000
Retained earnings, December 31, 2020	$( 28,861,500)	$( 5,050,000)
Current Assets	$ 30,500,000	$ 20,800,000
Investment in XYZ	13,161,500
Land	1,500,000	1,700,000
Buildings	5,600,000	2,360,000
Equipment (net)	3,100,000	2,960,000
Total assets	$ 53,861,500	$ 27,820,000
Accounts payable	$( 3,100,000)	$ (4,900,000)
Notes payable		( 1,000,000)
Common stock	( 2,900,000)	( 6,000,000)
Additional paid-in capital	( 19,000,000)	( 10,870,000)
Retained earnings, Dec. 31, 2020 (above)	( 28,861,500)	( 5,050,000)
Total liabilities and stockholders equity	$ (53,861,500)	$( 27,820,000)

1. Prepare a schedule to determine goodwill, and the amortization and allocation amounts.
2. Prepare a consolidation worksheet for this business combination. Assume goodwill has been reviewed and there is no goodwill impairment.