Problem 4: BONUS QUESTION 10 points On January 1, 2017, Adora Corporation acquired 100 percent of the outstanding voting stock of Alvah Corporation for $2,099,600 cash. On the acquisition date, Alvah had the following balance sheet: Cash $ 152,000 Accounts payable $ 184,000 Accounts receivable 137,000 Long-term debt 985,000 Land 730,000 Common stock 1,049,000 Equipment (net) 1,942,000 Retained earnings 743,000 $ 2,961,000 $ 2,961,000 At the acquisition date, the following allocation was prepared: Fair value of consideration transferred $ 2,099,600 Book value acquired 1,792,000 Excess fair value over book value 307,600 To in-process research and development $ 44,000 To equipment (8-year remaining life) 133,600 177,600 To goodwill (indefinite life) $ 130,000 Although at acquisition date Adora had expected $44,000 in future benefits from Alvahs in-process research and development project, by the end of 2017, it was apparent that the research project was a failure with no future economic benefits. On December 31, 2018, Adora and Alvah submitted the following trial balances for

consolidation. There were no intra-entity payables on that date. Adora Alvah Sales $ (3,795,200 ) $ (1,166,250 ) Cost of goods sold 1,810,000 745,000 Depreciation expense 335,000 147,000 Other operating expenses 223,000 37,250 Subsidiary income (220,300 ) 0 Net income $ (1,647,500 ) $ (237,000 ) Retained earnings 1/1/18 $ (3,052,500 ) $ (936,000 ) Net income (1,647,500 ) (237,000 ) Dividends declared 300,000 26,225 Retained earnings 12/31/18 $ (4,400,000 ) $ (1,146,775 ) Cash $ 110,025 $ 6,275 Accounts receivable 937,000 164,000 Inventory 908,000 613,000 Investment in GaugeRite 2,425,975 0 Land 3,120,000 760,000 Equipment (net) 5,180,000 1,942,500 Goodwill 354,000 0 Total assets $ 13,035,000 $ 3,485,775 Accounts payable $ (220,000 ) $ (455,000 ) Long-term debt $ (3,265,000 ) $ (835,000 ) Common stock (5,150,000 ) (1,049,000 ) Retained earnings 12/31/18 (4,400,000 ) (1,146,775 ) Total liabilities and equity $ (13,035,000 ) $ (3,485,775 ) a. Show how Adora derived its December 31, 2018, Investment in Alvah account balance. b. Prepare a consolidated worksheet for Adora and Alvah as of December 31, 2018. Problem 4 Solution: Problem 4: BONUS QUESTION 10 points On January 1, 2017, Adora Corporation acquired 100 percent of the outstanding voting stock of Alvah Corporation for $2,099,600 cash. On the acquisition date, Alvah had the following balance sheet: Cash $ 152,000 Accounts payable $ 184,000 Accounts receivable 137,000 Long-term debt 985,000 Land 730,000 Common stock 1,049,000 Equipment (net) 1,942,000 Retained earnings 743,000 $ 2,961,000 $ 2,961,000 At the acquisition date, the following allocation was prepared: Fair value of consideration transferred $ 2,099,600 Book value acquired 1,792,000 Excess fair value over book value 307,600 To in-process research and development $ 44,000 To equipment (8-year remaining life) 133,600 177,600 To goodwill (indefinite life) $ 130,000 Although at acquisition date Adora had expected $44,000 in future benefits from Alvahs in-process research and development project, by the end of 2017, it was apparent that the research project was a failure with no future economic benefits. On December 31, 2018, Adora and Alvah submitted the following trial balances for consolidation. There were no intra-entity payables on that date. Adora Alvah Sales $ (3,795,200 ) $ (1,166,250 ) Cost of goods sold 1,810,000 745,000 Depreciation expense 335,000 147,000 Other operating expenses 223,000 37,250 Subsidiary income (220,300 ) 0 Net income $ (1,647,500 ) $ (237,000 ) Retained earnings 1/1/18 $ (3,052,500 ) $ (936,000 ) Net income (1,647,500 ) (237,000 ) Dividends declared 300,000 26,225 Retained earnings 12/31/18 $ (4,400,000 ) $ (1,146,775 ) Cash $ 110,025 $ 6,275 Accounts receivable 937,000 164,000 Inventory 908,000 613,000 Investment in GaugeRite 2,425,975 0 Land 3,120,000 760,000 Equipment (net) 5,180,000 1,942,500 Goodwill 354,000 0 Total assets $ 13,035,000 $ 3,485,775 Accounts payable $ (220,000 ) $ (455,000 ) Long-term debt $ (3,265,000 ) $ (835,000 ) Common stock (5,150,000 ) (1,049,000 ) Retained earnings 12/31/18 (4,400,000 ) (1,146,775 ) Total liabilities and equity $ (13,035,000 ) $ (3,485,775 ) a. Show how Adora derived its December 31, 2018, Investment in Alvah account balance. b. Prepare a consolidated worksheet for Adora and Alvah as of December 31, 2018. Problem 4 Solution: Problem 4: BONUS QUESTION 10 points On January 1, 2017, Adora Corporation acquired 100 percent of the outstanding voting stock of Alvah Corporation for $2,099,600 cash. On the acquisition date, Alvah had the following balance sheet: Cash $ 152,000 Accounts payable $ 184,000 Accounts receivable 137,000 Long-term debt 985,000 Land 730,000 Common stock 1,049,000 Equipment (net) 1,942,000 Retained earnings 743,000 $ 2,961,000 $ 2,961,000 At the acquisition date, the following allocation was prepared: Fair value of consideration transferred $ 2,099,600 Book value acquired 1,792,000 Excess fair value over book value 307,600 To in-process research and development $ 44,000 To equipment (8-year remaining life) 133,600 177,600 To goodwill (indefinite life) $ 130,000 Although at acquisition date Adora had expected $44,000 in future benefits from Alvahs in-process research and development project, by the end of 2017, it was apparent that the research project was a failure with no future economic benefits. On December 31, 2018, Adora and Alvah submitted the following trial balances for consolidation. There were no intra-entity payables on that date. Adora Alvah Sales $ (3,795,200 ) $ (1,166,250 ) Cost of goods sold 1,810,000 745,000 Depreciation expense 335,000 147,000 Other operating expenses 223,000 37,250 Subsidiary income (220,300 ) 0 Net income $ (1,647,500 ) $ (237,000 ) Retained earnings 1/1/18 $ (3,052,500 ) $ (936,000 ) Net income (1,647,500 ) (237,000 ) Dividends declared 300,000 26,225 Retained earnings 12/31/18 $ (4,400,000 ) $ (1,146,775 ) Cash $ 110,025 $ 6,275 Accounts receivable 937,000 164,000 Inventory 908,000 613,000 Investment in GaugeRite 2,425,975 0 Land 3,120,000 760,000 Equipment (net) 5,180,000 1,942,500 Goodwill 354,000 0 Total assets $ 13,035,000 $ 3,485,775 Accounts payable $ (220,000 ) $ (455,000 ) Long-term debt $ (3,265,000 ) $ (835,000 ) Common stock (5,150,000 ) (1,049,000 ) Retained earnings 12/31/18 (4,400,000 ) (1,146,775 ) Total liabilities and equity $ (13,035,000 ) $ (3,485,775 ) a. Show how Adora derived its December 31, 2018, Investment in Alvah account balance. b. Prepare a consolidated worksheet for Adora and Alvah as of December 31, 2018.