Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5.916,000 incash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At theacquisition date, Mathias's stockholders' equity was $2.010.000 including retained earnings of $1,510,000.At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:Consideration transferredMathias stockholders' equityExcess fair over book valueto unpatented technology (8-year remaining life)to patents (18-year remaining life)to increase long-term debt (undervalued, 5-year remaining life)$5,916,0002,010,000$3,906,000$ 816,8002,520, 00e(110, 000)3,226,000$ 680,000GoodwillPostacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following thebusiness combination, Mathias reports the following income and dividends:Income$ 476, 250952, 5eeDividends$ 25,0005e,eee20202021No asset impairments have occurred since the acquisition date.Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividendsdeclared were paid in the same period. AllisonMathiasIncome Statement$ (6,440,ee0)4,528,e00885, 000435,00059,000(620,500)$ (1,153,500)SalesCost of goods soldDepreciation expenseAmortization expenseInterest expenseEquity earnings in Mathias$(3,910,e0e)2,506, 500283,000106, e0062,000$ (952,500)Net incomeStatement of Retained EarningsRetained earnings 1/1Net income (above)Dividends declared$ (5,360,000)(1,153,5e0)560, e00$ (5,953,5e0)$(1,961,250)(952,500)se, e00$(2,863,758)Retained earnings 12/31Balance SheetCash78,ee0960, eee1,720,e006,685,7503,720,000100, eee2,135,000432,000$ 15,750,750146,800230, e00795, 800Accounts receivableInventoryInvestment in MathiasEquipment (net)Patents2,059,000Unpatented technologyGoodwill1,460, 000Total assets$ 4,690, 000Accounts payableLong-term debtCommon stock(597,250)(1,800, e00)(8, 200, e00)(5,953,500)$ (126,250)(1,200,000)(50e, e0e)(2,863,750)Retained earnings 12/31Total liabilities and equity$(15,750,750)$(4, 69e, eee)Requlred: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.

The question is based on the concept of Financial Accounting.

Answered: Allison Corporation acquired all of the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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