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Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,346,500 in cash. Allison intends to
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,346,500 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 $2,115,000 including retained earnings of $1,615,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred Mathias stockholders' equity $6,346,500 2,115,000 $4,231,500 Excess fair over book value to unpatented technology (8-year remaining life) to patents (10-year remaining life) $ 984,000 2,730,000 (215,000) 3,499,000 to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 732,500 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: Income Dividends $ 25,000 2020 2021 $ 436,875 873,750 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 Income Statement Sales $ (6,860,000) 4,822,000 990,000 $(4,015,000) 2,574,750 Cost of goods sold Depreciation expense 346,000 487,500 Amortization expense Interest expense 101,000 (520,750) 137,500 83,000 0 Equity earnings in Mathias Net income $ (980,250) $ (873,750) Statement of Retained Earnings Retained earnings 1/1 $ (5,570,000) Net income (above) Dividends declared (980,250) 560,000 $(2,026,875) (873,750) 50,000 $(2,850,625) $ (5,990,250) Retained earnings 12/31 Balance Sheet Cash $ $ 177,500 Accounts receivable 282,500 109,500 1,065,000 1,930,000 6,876,125 Inventory 900,000 Investment in Mathias 0 Equipment (net) 3,930,000 2,132,500 Patents 0 152,500 2,240,000 505,500 Unpatented technology Goodwill 1,565,000 0 Total assets $ Accounts payable Long-term debt. $ 16,808,625 (1,618,375) (1,000,000) (8,200,000) $ 5,057,500 $ (506,875) (1,200,000) (500,000) (2,850,625) Common stock Retained earnings 12/31 (5,990,250) $(16,808,625) $(5,057,500) Total liabilities and equity Required: a. Determine the annual excess fair over book value amortization. b. Prepare a worksheet to determine the consolidated values to be reported on Allison's financial statements. Complete this question by entering your answers in the tabs below. Required A Required B Determine the annual excess fair over book value amortization. Annual excess fair over book value amortization Accounts Income Statement Revenues 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 ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2021 Consolidation Entries Allison Mathias Debit Credit $ (6,860,000) $ (4,015,000) 4,822,000 2,574,750 990,000 346,000 487,500 137,500 101,000 83,000 (520,750) (980,250) $ (873,750) (5,570,000) (2,026,875) (980,250) (873,750) 560,000 50,000 $ (5,990,250) $ (2,850,625) $ 109,500 $ 177,500 1,065,000 282,500 1,930,000 900,000 6,876,125 3,930,000 2,132,500 152,500 2,240,000 1,565,000 505,500 $ 16,808,625 $ 5,057,500 (1,618,375) (506,875) (1,000,000) (1,200,000) (8,200,000) (500,000) (5,990,250) (2,850,625) $(16,808,625) $ (5,057,500) Balance Sheet Cash Accounts receivable Inventories 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 $ Consolidated Totals $ 18,644,500
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