FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Determine the annual excess fair over book value amortization.
-
Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
Transcribed Image Text:Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,998,000 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 $2,030,000 including retained earnings of $1,530,000.
At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:
Consideration transferred
$5,998,000
2,030,000
$3,968,000
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)
$
848,000
2,560,000
(130,000)
3,278,000
Goodwill
$
690,000
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
$ 468,750
937,500
$ 25,000
50,000
2020
2021
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
$ (6,520,000)
4,584,000
905,000
445,000
67,000
(601,500)
$ (1,120,500)
Sales
Cost of goods sold
Depreciation expense
Amortization expense
$ (3,930,000)
2,519,500
295,000
112,000
66,000
Interest expense
Equity earnings in Mathias
Net income
$
(937,500)
Statement of Retained Earnings
Retained earnings 1/1
Net income (above)
$ (5,400,000)
(1,120,500)
560,000
$ (5,960,500)
$(1,973,750)
(937,500)
50,000
Dividends declared
Retained earnings 12/31
$ (2,861,250)
Balance Sheet
152,000
240,000
815,000
84,000
980,000
1,760,000
6,657,250
3,760,000
110,000
2,155,000
Cash
$
Accounts receivable
Inventory
Investment in Mathias
Equipment (net)
2,073,000
Patents
Unpatented technology
Goodwill
1,480,000
446,000
$ 15,952,250
Total assets
$ 4,760,000
Accounts payable
Long-term debt
$
(791,750)
(1,000,000)
(8,200,000)
(5,960,500)
2$
(198,750)
(1,200,000)
(500,000)
(2,861,250)
$ (4,760,000)
Common stock
Retained earnings 12/31
Total liabilities and equity
$ (15,952,250)
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.
Transcribed Image Text:Required A
Required B
Prepare a worksheet to determine the consolidated values to be reported on Allison's financial statements. (For accounts where
multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column
of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the
worksheet. Input all amounts as positive values.)
Show less A
ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY
Consolidation Worksheet
For Year Ending December 31, 2021
Consolidation Entries
Consolidated
Totals
Accounts
Allison
Mathias
Debit
Credit
Income Statement
Revenues
$ (6,520,000) $ (3,930,000)
Cost of goods sold
4,584,000
2,519,500
Depreciation expense
905,000
295,000
Amortization expense
445,000
112,000
Interest expense
67,000
66,000
Equity earnings in Mathias
(601,500)
Net income
$ (1,120,500)
$
(937,500)
Statement of Retained Earnings
Retained earnings 1/1
(5,400,000)
(1,973,750)
Net income (above)
(1,120,500)
(937,500)
Dividends declared
560,000
50,000
Retained earnings 12/31
$ (5,960,500)
$ (2,861,250)
Balance Sheet
Cash
84,000
$
152,000
Accounts receivable
980,000
240,000
Inventories
1,760,000
815,000
Investment in Mathias
6,657,250
Equipment (net)
3,760,000
2,073,000
Patents
110,000
Unpatented technology
2,155,000
1,480,000
Goodwill
446,000
Total assets
$ 15,952,250
2$
4,760,000
Accounts payable
(791,750)
(198,750)
Long-term debt
(1,000,000)
(1,200,000)
Common stock
(8,200,000)
(500,000)
Retained earnings 12/31
(5,960,500)
(2,861,250)
Total liabilities and equity
$ (15,952,250) $ (4,760,000)
$
0 $
$ 17,429,000
< Required A
Required B
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