FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
Bartleby Related Questions Icon

Related questions

Question

Allison Corporation acquired all of the outstanding voting stock of Mathias, Incorporated, on January 1, 2023, in exchange for $6,059,500 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 $2,045,000 including retained earnings of $1,545,000.

At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:

Consideration transferred   $ 6,059,500
Mathias stockholders' equity   2,045,000
Excess fair over book value   $ 4,014,500
to unpatented technology (8-year remaining life) $ 872,000  
to patents (10-year remaining life) 2,590,000  
to increase long-term debt (undervalued, 5-year remaining life) (145,000) 3,317,000
Goodwill   $ 697,500

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:

Year Income Dividends
2023 $ 463,125 $ 25,000
2024 926,250 50,000

No asset impairments have occurred since the acquisition date.

Individual financial statements for each company as of December 31, 2024, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Items Allison Mathias
Income Statement    
Sales $ (6,580,000) $ (3,945,000)
Cost of goods sold 4,626,000 2,529,250
Depreciation expense 920,000 304,000
Amortization expense 452,500 116,500
Interest expense 73,000 69,000
Equity earnings in Mathias (587,250) 0
Net income $ (1,095,750) $ (926,250)
Statement of Retained Earnings    
Retained earnings, 1/1 $ (5,430,000) $ (1,983,125)
Net income (above) (1,095,750) (926,250)
Dividends declared 560,000 50,000
Retained earnings, 12/31 $ (5,965,750) $ (2,859,375)
Balance Sheet    
Cash $ 88,500 $ 156,500
Accounts receivable 995,000 247,500
Inventory 1,790,000 830,000
Investment in Mathias 6,695,875 0
Equipment (net) 3,790,000 2,083,500
Patents 117,500 0
Unpatented technology 2,170,000 1,495,000
Goodwill 456,500 0
Total assets $ 16,103,375 $ 4,812,500
Accounts payable $ (937,625) $ (253,125)
Long-term debt (1,000,000) (1,200,000)
Common stock (8,200,000) (500,000)
Retained earnings, 12/31 (5,965,750) (2,859,375)
Total liabilities and equity $ (16,103,375) $ (4,812,500)

Required:

  1. Determine the annual excess fair over book value amortization.

  2. Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.

Expert Solution
Check Mark
Knowledge Booster
Background pattern image
Accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education