Required:
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Determine the annual excess fair over book value amortization.
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Prepare a worksheet to determine the consolidated values to be reported on Allisons financial statements.
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 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 $2,125,000 including retained earnings of $1,625,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: $6,387,500 2,125,000 $4,262,500 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 $1,000,000 2,750,000 (225,000) 3,525,000 $ 737,500 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: 2020 2021 Income $ 433, 125 866,250 Dividends $ 25,000 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. Allison Mathias $ (6,900,000) 4,850,000 1,000,000 492,500 105,000 (511,250) $ (963,750) $(4,025,000) 2,581,250 352,000 140,500 85,000 0 $ (866,250) $ (5,590,000) (963,750) 560,000 $ (5,993,750) $(2,033, 125) (866, 250) 50,000 $(2,849,375) 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 Retained earnings 12/31 Balance Sheet Cash Accounts receivable Inventory Investment in Mathias Equipment (net) Patents Unpatented technology Goodwill Total assets Accounts payable Long-term debt Common stock Retained earnings 12/31 Total liabilities and equity $ 180,500 287,500 910,000 $ 112,500 1,075,000 1,950,000 6,901,875 3,950,000 157,500 2,250,000 512,500 $ 16,909, 375 $ (1,715, 625) (1,000,000) (8,200,000) (5,993, 750) $(16,909, 375) 2,139,500 0 1,575,000 0 $ 5,092,500 (543,125) (1,200,000) (500,000) (2,849,375) $(5,092,500) $
