Allison Corporation acquired all of the oustanding voting stock
of Mathias, Inc., on January 1, 2020, in exchange for $6,100,500 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 $2,055,000
including retained earnings of $1,555,000. (See the rest of the
question attached).
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.
- Allison Corporation Acquired All Of The Oustanding Voting Stock Of Mathias Inc On January 1 2020 In Exchange For 6 1 (81.51 KiB) Viewed 54 times
- Allison Corporation Acquired All Of The Oustanding Voting Stock Of Mathias Inc On January 1 2020 In Exchange For 6 2 (51.75 KiB) Viewed 54 times
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,100,500 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 $2,055,000 including retained earnings of $1,555,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred Mathias stockholders' equity $6,100,500 2,055,000 $4,045,500 Excess fair over book value to unpatented technology (8-year remaining life) to patents (10-year remaining life) $ 888,000 2,610,000 (155,000) to increase long-term debt (undervalued, 5-year remaining life) 3,343,000 Goodwill $ 702,500 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 2020 2021 $ 459,375 918,750 Dividends $ 25,000 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 $ (3,955,000) $ (6,620,000) 4,654,000 Cost of goods sold 2,535,750 Depreciation expense 930,000 310,000 Amortization expense 457,500 Interest expense 77,000 119,500 71,000 0 Equity earnings in Mathias. (577,750) Net income $ (1,079,250) $ (918,750)
Statement of Retained Earnings Retained earnings 1/1 Net income (above) $ (5,450,000) (1,079,250) 560,000 Dividends declared $(1,989,375) (918,750) 50,000 $(2,858,125) Retained earnings 12/31 $ (5,969,250) Balance Sheet Cash $ $ 91,500 1,005,000 1,810,000 159,500 252,500 Accounts receivable. Inventory 840,000 Investment in Mathias 6,721,625 0 Equipment (net) 3,810,000 2,090, 500 Patents 122,500 2,180,000 463,500 Unpatented technology Goodwill 1,505,000 Total assets $ 16,204,125 $ 4,847,500 Accounts payable Long-term debt $ (1,034,875) (1,000,000) (8,200,000) $ (289,375) (1,200,000) (500,000) Common stock Retained earnings 12/31 (5,969,250) (2,858,125) Total liabilities and equity $(16,204, 125) $(4,847,500) 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.
Accounts ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2021 Consolidation Entries Allison Mathias Debit Credit $ (6,620,000) $ (3,955,000) 4,654,000 2,535,750 930,000 310,000 457,500 119,500 77,000 71,000 (577,750) $ (1,079,250) $ (918,750) (5,450,000) (1,989,375) (1,079,250) (918,750) 560,000 50,000 $ (5,969,250) $ (2,858,125) $ 91,500 $ 159,500 1,005,000 252,500 1,810,000 840,000 6,721,625 3,810,000 2,090,500 122,500 2,180,000 1,505,000 463,500 $ 16,204,125 $ 4,847,500 (1,034,875) (289,375) (1,000,000) (1,200,000) (8,200,000) (500,000) (5,969,250) (2,858,125) $(16,204,125) $ (4,847,500) $ 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 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 0 0 Consolidated Totals $ 17,786,500