Allison Corporation acquired all of the outstanding voting stockof Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 incash. Allison intends to maintain Mathias as a wholly ownedsubsidiary. Both companies have December 31 fiscal year-ends. Atthe acquisition date, Mathiasâs stockholdersâ equity was $2,070,000including retained earnings of $1,570,000.
At the acquisition date, Allison prepared the following fairvalue allocation schedule for its newly acquired subsidiary:
Consideration transferred $ 6,162,000 Mathias stockholders'equity 2,070,000 Excess fair over bookvalue $ 4,092,000 to unpatented technology(8-year remaining life) $ 912,000 to patents (10-year remaininglife) 2,640,000 to increase long-term debt(undervalued, 5-year remaining life) (170,000 ) 3,382,000 Goodwill $ 710,000
Post-acquisition, Allison employs the equity method to accountfor its investment in Mathias. During the two years following thebusiness combination, Mathias reports the following income anddividends:
Income Dividends 2017 $ 453,750 $ 25,000 2018 907,500 50,000
No asset impairments have occurred since the acquisitiondate.
Individual financial statements for each company as of December31, 2018, appear below. Parentheses indicate credit balances.Dividends declared were paid in the same period.
Allison Mathias IncomeStatement Sales $ (6,680,000 ) $ (3,970,000 ) Cost of goods sold 4,696,000 2,545,500 Depreciation expense 945,000 319,000 Amortization expense 465,000 124,000 Interest expense 83,000 74,000 Equity earnings in Mathias (563,500 ) 0 Net income $ (1,054,500 ) $ (907,500 ) Statement of RetainedEarnings Retained earnings 1/1 $ (5,480,000 ) $ (1,998,750 ) Net income (above) (1,054,500 ) (907,500 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,974,500 ) $ (2,856,250 ) BalanceSheet Cash $ 96,000 $ 164,000 Accounts receivable 1,020,000 260,000 Inventory 1,840,000 855,000 Investment in Mathias 6,760,250 0 Equipment (net) 3,840,000 2,101,000 Patents 130,000 0 Unpatented technology 2,195,000 1,520,000 Goodwill 474,000 0 Total assets $ 16,355,250 $ 4,900,000 Accounts payable $ (1,180,750 ) $ (343,750 ) Long-term debt $ (1,000,000 ) $ (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,974,500 ) (2,856,250 ) Total liabilities andequity $ (16,355,250 ) $ (4,900,000 )
Required:
Determine Allison's December 31, 2018, Investment inMathias balance.
Prepare a worksheet to determine the consolidated valuesto be reported on Allisonâs financial statements.
Prepare a worksheet to determine the consolidated values to bereported on Allisonâs financial statements. (For accounts wheremultiple consolidation entries are required, combine all debitentries into one amount and enter this amount in the debit columnof the worksheet. Similarly, combine all credit entries into oneamount and enter this amount in the credit column of the worksheet.Amounts in the Debit and Credit columns should be entered aspositive. Negative amounts for the Consolidated Totals columnshould be entered with a minus sign.)
ALLISON CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year Ending December 31, 2018 Consolidation Entries Accounts Allison Mathias Debit Credit Consolidated Totals IncomeStatement Revenues $(6,680,000) $(3,970,000) Cost of goodssold 4,696,000 2,545,500 Depreciationexpense 945,000 319,000 Amortizationexpense 465,000 124,000 Interestexpense 83,000 74,000 Equity earnings inMathias (563,500) Net income $(1,054,500) $(907,500) Statement ofRetained Earnings Retained earnings1/1 (5,480,000) (1,998,750) Net income(above) (1,054,500) (907,500) Dividendsdeclared 560,000 50,000 Retained earnings12/31 $(5,974,500) $(2,856,250) Balance Sheet Cash $96,000 $164,000 Accountsreceivable 1,020,000 260,000 Inventories 1,840,000 855,000 Investment inMathias 6,760,250 Equipment(net) 3,840,000 2,101,000 Patents 130,000 Unpatentedtechnology 2,195,000 1,520,000 Goodwill 474,000 Total assets $16,355,250 $4,900,000 Accountspayable (1,180,750) (343,750) Long-term debt (1,000,000) (1,200,000) Common stock (8,200,000) (500,000) Retained earnings12/31 (5,974,500) (2,856,250) Total liabilitiesand equity $(16,355,250) $(4,900,000)
Allison Corporation acquired all of the outstanding voting stockof Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 incash. Allison intends to maintain Mathias as a wholly ownedsubsidiary. Both companies have December 31 fiscal year-ends. Atthe acquisition date, Mathiasâs stockholdersâ equity was $2,070,000including retained earnings of $1,570,000.
At the acquisition date, Allison prepared the following fairvalue allocation schedule for its newly acquired subsidiary:
| Consideration transferred | $ | 6,162,000 | |||||
| Mathias stockholders'equity | 2,070,000 | ||||||
| Excess fair over bookvalue | $ | 4,092,000 | |||||
| to unpatented technology(8-year remaining life) | $ | 912,000 | |||||
| to patents (10-year remaininglife) | 2,640,000 | ||||||
| to increase long-term debt(undervalued, 5-year remaining life) | (170,000 | ) | 3,382,000 | ||||
| Goodwill | $ | 710,000 | |||||
Post-acquisition, Allison employs the equity method to accountfor its investment in Mathias. During the two years following thebusiness combination, Mathias reports the following income anddividends:
| Income | Dividends | |||
| 2017 | $ | 453,750 | $ | 25,000 |
| 2018 | 907,500 | 50,000 | ||
No asset impairments have occurred since the acquisitiondate.
Individual financial statements for each company as of December31, 2018, appear below. Parentheses indicate credit balances.Dividends declared were paid in the same period.
| Allison | Mathias | ||||||
| IncomeStatement | |||||||
| Sales | $ | (6,680,000 | ) | $ | (3,970,000 | ) | |
| Cost of goods sold | 4,696,000 | 2,545,500 | |||||
| Depreciation expense | 945,000 | 319,000 | |||||
| Amortization expense | 465,000 | 124,000 | |||||
| Interest expense | 83,000 | 74,000 | |||||
| Equity earnings in Mathias | (563,500 | ) | 0 | ||||
| Net income | $ | (1,054,500 | ) | $ | (907,500 | ) | |
| Statement of RetainedEarnings | |||||||
| Retained earnings 1/1 | $ | (5,480,000 | ) | $ | (1,998,750 | ) | |
| Net income (above) | (1,054,500 | ) | (907,500 | ) | |||
| Dividends declared | 560,000 | 50,000 | |||||
| Retained earnings 12/31 | $ | (5,974,500 | ) | $ | (2,856,250 | ) | |
| BalanceSheet | |||||||
| Cash | $ | 96,000 | $ | 164,000 | |||
| Accounts receivable | 1,020,000 | 260,000 | |||||
| Inventory | 1,840,000 | 855,000 | |||||
| Investment in Mathias | 6,760,250 | 0 | |||||
| Equipment (net) | 3,840,000 | 2,101,000 | |||||
| Patents | 130,000 | 0 | |||||
| Unpatented technology | 2,195,000 | 1,520,000 | |||||
| Goodwill | 474,000 | 0 | |||||
| Total assets | $ | 16,355,250 | $ | 4,900,000 | |||
| Accounts payable | $ | (1,180,750 | ) | $ | (343,750 | ) | |
| Long-term debt | $ | (1,000,000 | ) | $ | (1,200,000 | ) | |
| Common stock | (8,200,000 | ) | (500,000 | ) | |||
| Retained earnings 12/31 | (5,974,500 | ) | (2,856,250 | ) | |||
| Total liabilities andequity | $ | (16,355,250 | ) | $ | (4,900,000 | ) | |
Required:
Determine Allison's December 31, 2018, Investment inMathias balance.
Prepare a worksheet to determine the consolidated valuesto be reported on Allisonâs financial statements.
Prepare a worksheet to determine the consolidated values to bereported on Allisonâs financial statements. (For accounts wheremultiple consolidation entries are required, combine all debitentries into one amount and enter this amount in the debit columnof the worksheet. Similarly, combine all credit entries into oneamount and enter this amount in the credit column of the worksheet.Amounts in the Debit and Credit columns should be entered aspositive. Negative amounts for the Consolidated Totals columnshould be entered with a minus sign.)
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