Problem 3-37 (Static) (LO 3-3)

On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,980,000 cash. On the acquisition date, GaugeRite had the following balance sheet:

Cash	$	14,000		Accounts payable	$	120,000
Accounts receivable		100,000		Long-term debt		930,000
Land		700,000		Common stock		1,000,000
Equipment (net)		1,886,000		Retained earnings		650,000
Total assets	$	2,700,000		Total liabilities and equity	$	2,700,000

At the acquisition date, the following allocation was prepared:

Fair value of consideration transferred				$	1,980,000
Book value acquired					1,650,000
Excess fair value over book value					330,000
To in-process research and development	$	44,000
To equipment (8-year remaining life)		56,000			100,000
To goodwill (indefinite life)				$	230,000

Although at acquisition date Procise had expected $44,000 in future benefits from GaugeRites in-process research and development project, by the end of 2020 it was apparent that the research project was a failure with no future economic benefits.

On December 31, 2021, Procise and GaugeRite submitted the following financial statements for consolidation. There were no intra-entity payables on that date.

	Procise				GaugeRite
Sales	$	(3,500,000	)		$	(1,000,000	)
Cost of goods sold		1,600,000				630,000
Depreciation expense		350,000				130,000
Other operating expenses		190,000				30,000
Subsidiary income		(203,000	)			0
Net income	$	(1,563,000	)		$	(210,000	)
Retained earnings 1/1/21	$	(3,000,000	)		$	(800,000	)
Net income		(1,563,000	)			(210,000	)
Dividends declared		200,000				25,000
Retained earnings 12/31/21	$	(4,363,000	)		$	(985,000	)
Cash	$	228,000			$	50,000
Accounts receivable		840,000				155,000
Inventory		900,000				580,000
Investment in GaugeRite		2,257,000				0
Land		3,500,000				700,000
Equipment (net)		4,785,000				1,700,000
Goodwill		290,000				0
Total assets	$	12,800,000			$	3,185,000
Accounts payable	$	(193,000	)		$	(400,000	)
Long-term debt		(3,094,000	)			(800,000	)
Common stock		(5,150,000	)			(1,000,000	)
Retained earnings 12/31/21		(4,363,000	)			(985,000	)
Total liabilities and equity	$	(12,800,000	)		$	(3,185,000	)