Problem 3-25 (Algo) (LO 3-1, 3-30, 3-4) Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,916,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias's stockholders' equity was $2,010,000 including retained earnings of $1,510,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred Mathias stockholders' equity Excess fair over book value to unpatented technology (8-year remaining life) to patents (10-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $5,916,000 2,010,000 $3,906,000 $ 816,000 2,520,000 (110,000) 3,226,000 $ 680,000 Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends: Income Dividends 2020 2021 $ 476,250 $ 25,000 952,500 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Sales Cost of goods sold Depreciation expense Amortization expense Interest expense Equity earnings in Mathias Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Allison Mathias $ (6,440,000) $(3,910,000) 4,528,000 2,506,500 885,000 435,000 59,000 (620,500) $ (1,153,500) $ (5,360,000) (1,153,500) 560,000 283,000 106,000 62,000 0 $ (952,500) $ (1,961,250) (952,500) 50,000