nuary 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,281,500 in cash and securities. On the acquisition date, Stylene had the following balance sheet: Cash $ 40,600 Accounts payable $ 1,641,600 Accounts receivable 124,000 Inventory 141,000 Equipment (net) 1,990,000 Common stock 800,000 Trademarks 1,040,000 Retained earnings 894,000 Total assets $ 3,335,600 Total liabilities and equity $ 3,335,600
On January 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,281,500 in cash and securities. On the acquisition date, Stylene had the following balance sheet:
| Cash | $ | 40,600 | Accounts payable | $ | 1,641,600 |
| Accounts receivable | 124,000 | ||||
| Inventory | 141,000 | ||||
| Equipment (net) | 1,990,000 | Common stock | 800,000 | ||
| Trademarks | 1,040,000 | 894,000 | |||
| Total assets | $ | 3,335,600 | Total liabilities and equity | $ | 3,335,600 |
At the acquisition date, the book values of Stylene’s assets and liabilities were generally equivalent to their fair values except for the following assets:
| Asset | Book Value | Fair Value | Remaining Useful Life |
||
| Equipment | $ | 1,990,000 | $ | 2,145,000 | 8 years |
| Customer lists | 0 | 196,000 | 4 years | ||
| Trademarks | 1,040,000 | 1,121,500 | indefinite | ||
During the next two years, Stylene has the following income and dividends in its own separately prepared financial reports to its parent.
| Net Income | Dividends | |||
| 2020 | $ | 217,000 | $ | 25,000 |
| 2021 | 392,000 | 45,000 | ||
Dividends are declared and paid in the same period. The December 31, 2021, separate financial statements for each company follow. Parentheses indicate credit balances.
| Prestige | Stylene | ||||||
| Income Statement | |||||||
| Revenues | $ | (4,360,000 | ) | $ | (2,914,000 | ) | |
| Cost of goods sold | 2,380,000 | 2,060,000 | |||||
| 544,000 | 462,000 | ||||||
| Amortization expense | 135,000 | 0 | |||||
| Equity earnings in Stylene | (323,625 | ) | 0 | ||||
| Net income | $ | (1,624,625 | ) | $ | (392,000 | ) | |
| Statement of Retained Earnings | |||||||
| Retained earnings 1/1 | $ | (3,490,000 | ) | $ | (1,086,000 | ) | |
| Net income (above) | (1,624,625 | ) | (392,000 | ) | |||
| Dividends declared | 150,000 | 45,000 | |||||
| Retained earnings 12/31 | $ | (4,964,625 | ) | $ | (1,433,000 | ) | |
| Balance Sheet | |||||||
| Cash | $ | 488,000 | $ | 49,500 | |||
| Accounts receivable | 802,000 | 77,000 | |||||
| Inventory | 891,000 | 478,000 | |||||
| Investment in Stylene | 2,683,750 | 0 | |||||
| Equipment | 6,120,000 | 2,100,000 | |||||
| Customer lists | 141,000 | 0 | |||||
| Trademarks | 3,390,000 | 936,000 | |||||
| 262,000 | 0 | ||||||
| Total assets | $ | 14,777,750 | $ | 3,640,500 | |||
| Accounts payable | $ | (1,313,125 | ) | $ | (1,407,500 | ) | |
| Common stock | (8,500,000 | ) | (800,000 | ) | |||
| Retained earnings, 12/31 | (4,964,625 | ) | (1,433,000 | ) | |||
| Total liabilities and equity | $ | (14,777,750 | ) | $ | (3,640,500 | ) | |
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Determine the fair value in excess of book value for Prestige’s acquisition date investment in Stylene.
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Determine Prestige's December 31, 2021, Investment in Stylene balance.
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Prepare a worksheet to determine the balances for Prestige’s December 31, 2021, consolidated financial statements.
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