Problem 3-26 (Algo) (LO 3-1, 3-3a) 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 Patented technology Computer software Book Value $ 177,500 Fair Value $ 2,802,500 Remaining Useful Life 7 years $ 82,500 $ 3,082,500 12 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 2022 2023 $ 901,500 Dividends $ 150,000 150,000 2024 941,500 976,500 150,000 December 31, 2024, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. December 31, 2024, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Revenues Items 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 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 Persoff $ (2,870,000) 1,423,500 Sea Cliff $ (2,325,000) 898,500 312,500 415,000 (351,500) $ (976,500) $ (1,070,500) 410,000 40,000 0 $ (7,545,000) $ (3,325,500) (1,070,500) 600,000 $ (8,015,500) $ 557,500 8,939,500 375,000 890,000 130,000 1,887,500 $ 12,779,500 $ (2,764,000) (2,000,000) (8,015,500) (976,500) 150,000 $ (4,152,000) $ 412,500 67,500 110,000 0 4,650,000 $ 5,240,000 $ (288,000) (800,000) (4,152,000) $ (12,779,500) $ (5,240,000) Required: a. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff. b. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2024. c. Determine Persoff's December 31, 2024, Investment in Sea Cliff's balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. Required A Required B Required C Required D Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. Note: For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values. Accounts PERSOFF CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year December 31, 2024 Persoff Sea Cliff Consolidation Entries Consolidated Debit Credit Totals Income Statement Revenues Cost of goods sold $ (2,870,000) $ (2,325,000) 1,423,500 898,500 Depreciation expense 312,500 410,000 Amortization expense 415,000 40,000 Equity earnings in Sea Cliff (351,500) 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 600,000 150,000 Retained earnings 12/31 $ (8,015,500) $ (4,152,000) Balance Sheet Current assets $ 557,500 $ 412,500 Investment in Sea Cliff 8,939,500 Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity 375,000 67,500 890,000 110,000 130,000 0 1,887,500 4,650,000 $ 12,779,500 $ 5,240,000 (2,764,000) (288,000) (2,000,000) (800,000) (8,015,500) (4,152,000) $ (12,779,500) $ (5,240,000) $ 0 $ 0 Show less