,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 $2,000,000 including retained earnings of $1,5
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $5,875,000 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
At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary
Post-acquisition, 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:
Year | Income | Dividends |
2020 | 480,000 | 25,000 |
2021 | 960,000 | 50,000 |
No asset impairments have occurred since the acquisition date.
Individual financial statements for each company as of December 31, 2018, appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period.
Required:
a. Show how Allison determined its December 31, 2018, Investment in Mathias balance.
b. Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
![Income Statement
Allson
Mathlas
Sales
Cost of goods sold
Depreclation expense
Amortization expense
Interest expense
(6,400,000)
4,500,000
875,000
430,000
(3,900,000)
2,500,000
277,000
103,000
55,000
(630,000)
(1,170,000)
60,000
-0-
(960,000)
Equity earnings In Mathlas
Net Income
Statement of Retalned Earnings
Retalned earnings 1/1
Net Income (above)
(5,340,000)
(1,170,000)
560,000
(5,950,000)
(1,955,000)
(960,000)
50,000
Dividends declared
Retalned earnings 12/31
(2,865,000)
Balance Sheet
75,000
950,000
Cash
143,000
225,000
785,000
Accounts recelvable
Inventories
1,700,000
6,580,000
Investment in Mathlas
-0-
Equipment (net)
Patents
3,700,000
95,000
2,125,000
2,052,000
-0-
Unpatented technology
Goodwll
1,450,000
425,000
15,650,000
(500,000)
(1,000,000)
(8,200,000)
(5,950,000)
(15,650,000)
-0-
Total assets
4,655,000
Accounts payable
Long-term debt
Common stock
(90,000)
(1,200,000)
(500,000)
(2,865,000)
(4,655,000)
Retalned earnings 12/31
Total llabilities and equity](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00158b5a-ed25-4c8c-99d7-384fc5de7e6a%2F4b2892af-759a-4438-ab76-16a3f65e24c6%2F6n0pk8j_processed.png&w=3840&q=75)
![Consideration transferred ..
$5,875,000
Mathlas stockholders' equity
2,000,000
Excess falr over book value
$3,875,000
$ 800,000
to unpatented technology (8-year remalning life).
to patents (10-year remalning life). ....
to Increase long-term debt (undervalued, 5-year
remalning life)
Goodwill .....
2,500,000
(100,000)
3,200,000
$ 675,000
.......](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00158b5a-ed25-4c8c-99d7-384fc5de7e6a%2F4b2892af-759a-4438-ab76-16a3f65e24c6%2Fgr5o2jm_processed.png&w=3840&q=75)
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