Chapter 3, Problem 26P

On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $6,815,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,527,500 including retained earnings of $1,727,500.   Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:   Asset Book Value Fair Value RemainingUseful Life Patented technology $ 152,500 $ 2,427,500 7 years Computer software $ 67,500 $ 1,867,500 12 years   Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff…

On January 3, 2022, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Incorporated, in exchange for $6,652,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,522,000 including retained earnings of $1,722,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These items had fair values that differed from their values on Sea Cliff's books as follows: Asset Patented technology Computer software Book Value $ 150,000 Fair Value $ 2,390,000 Remaining Useful Life 7 years $ 66,000 $ 1,746,000 12 years Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported…

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $652,000 in cash. Annual excess amortization of $13,700 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $498,000, and Rambis reported a $232,000 balance. Herbert reported internal net income of $44,750 in 2020 and $58,350 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $23,300 in 2020 and $36,900 in 2021 and declared $5,000 in dividends each year.   a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?  What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? Equity method, initial value method and partial…