Allison Corporation acquired all of the outstanding voting stock of Mathias, Incorporated, on January 1, 2023, 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 stockholders' equity was $2,000,000 including retained earnings of $1,500,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred Mathias stockholders' equity Excess fair over book value to patents (18-year remaining life) to unpatented technology (8-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 800,000 2,500,000 (100,000) $ 5,875,000 2,000,000 $ 3,875,000 3,200,000 $675,000 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: Year 2023 2824 Income $ 480,000 960,000 Dividends $ 25,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2024, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Items Allison Mathias Sales 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 Inventory 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 $ (6,400,000) 4,500,000 875,000 430,000 55,000 (630,000) $ (1,178,000) $ (5,340,000) (1,178,000) 560,000 $ (5,950,000) $ 75,000 950,000 1,700,000 6,580,000 3,700,000 95,000 2,125,000 425,000 $ 15,650,000 $ (500,000) (1,000,000) (8,200,000) (5,950,000) $ (15,650,000) $ (3,900,000) 2,500,000 277,000 103,000 60,000 В $ (968,000) $ (1,955,000) (960,000) 50,000 $ (2,865,000) $ 143,000 225,000 785,000 В 2,052,000 1,450,000 B $ 4,655,000 $ (98,000) (1,200,000) (see,eea) (2,865,000) $ (4,655,000) 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 outstanding voting stock of Mathias, Incorporated, on January 1, 2023, 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 stockholders' equity was $2,000,000 including retained earnings of $1,500,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred Mathias stockholders' equity Excess fair over book value to patents (18-year remaining life) to unpatented technology (8-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 800,000 2,500,000 (100,000) $ 5,875,000 2,000,000 $ 3,875,000 3,200,000 $675,000 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: Year 2023 2824 Income $ 480,000 960,000 Dividends $ 25,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2024, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Items Allison Mathias Sales 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 Inventory 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 $ (6,400,000) 4,500,000 875,000 430,000 55,000 (630,000) $ (1,178,000) $ (5,340,000) (1,178,000) 560,000 $ (5,950,000) $ 75,000 950,000 1,700,000 6,580,000 3,700,000 95,000 2,125,000 425,000 $ 15,650,000 $ (500,000) (1,000,000) (8,200,000) (5,950,000) $ (15,650,000) $ (3,900,000) 2,500,000 277,000 103,000 60,000 В $ (968,000) $ (1,955,000) (960,000) 50,000 $ (2,865,000) $ 143,000 225,000 785,000 В 2,052,000 1,450,000 B $ 4,655,000 $ (98,000) (1,200,000) (see,eea) (2,865,000) $ (4,655,000) 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.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter12: Intangibles

Section: Chapter Questions

Problem 18E

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