Allison Corporation acquired all of the outstanding voting stock of Mathias, Incorporated, on January 1, 2023, in exchange for $6,203,000 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 $2,080,000 including retained earnings of $1,580,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,203,000Mathias stockholders' equity 2,080,000Excess fair over book value $ 4,123,000to unpatented technology (8-year remaining life) $ 928,000 to patents (10-year remaining life) 2,660,000 to increase long-term debt (undervalued, 5-year remaining life) (180,000) 3,408,000Goodwill $ 715,000Postacquisition, 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 Dividends2023 $ 450,000 $ 25,0002024 900,000 50,000No 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. Items Allison MathiasIncome Statement Sales $ (6,720,000) $ (3,980,000)Cost of goods sold 4,724,000 2,552,000Depreciation expense 955,000 325,000Amortization expense 470,000 127,000Interest expense 87,000 76,000Equity earnings in Mathias (554,000) 0Net income $ (1,038,000) $ (900,000)Statement of Retained Earnings Retained earnings, 1/1 $ (5,500,000) $ (2,005,000)Net income (above) (1,038,000) (900,000)Dividends declared 560,000 50,000Retained earnings, 12/31 $ (5,978,000) $ (2,855,000)Balance Sheet Cash $ 99,000 $ 167,000Accounts receivable 1,030,000 265,000Inventory 1,860,000 865,000Investment in Mathias 6,786,000 0Equipment (net) 3,860,000 2,108,000Patents 135,000 0Unpatented technology 2,205,000 1,530,000Goodwill 481,000 0Total assets $ 16,456,000 $ 4,935,000Accounts payable $ (1,278,000) $ (380,000)Long-term debt (1,000,000) (1,200,000)Common stock (8,200,000) (500,000)Retained earnings, 12/31 (5,978,000) (2,855,000)Total liabilities and equity $ (16,456,000) $ (4,935,000)Required:Determine the annual excess fair over book value amortization.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 $6,203,000 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:
Consideration transferred $ 6,203,000
Mathias stockholders' equity 2,080,000
Excess fair over book value $ 4,123,000
to unpatented technology (8-year remaining life) $ 928,000
to patents (10-year remaining life) 2,660,000
to increase long-term debt (undervalued, 5-year remaining life) (180,000) 3,408,000
Goodwill $ 715,000
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 Income Dividends
2023 $ 450,000 $ 25,000
2024 900,000 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.
Items Allison Mathias
Income Statement
Sales $ (6,720,000) $ (3,980,000)
Cost of goods sold 4,724,000 2,552,000
Depreciation expense 955,000 325,000
Amortization expense 470,000 127,000
Interest expense 87,000 76,000
Equity earnings in Mathias (554,000) 0
Net income $ (1,038,000) $ (900,000)
Statement of Retained Earnings
Retained earnings, 1/1 $ (5,500,000) $ (2,005,000)
Net income (above) (1,038,000) (900,000)
Dividends declared 560,000 50,000
Retained earnings, 12/31 $ (5,978,000) $ (2,855,000)
Cash $ 99,000 $ 167,000
Accounts receivable 1,030,000 265,000
Inventory 1,860,000 865,000
Investment in Mathias 6,786,000 0
Equipment (net) 3,860,000 2,108,000
Patents 135,000 0
Unpatented technology 2,205,000 1,530,000
Goodwill 481,000 0
Total assets $ 16,456,000 $ 4,935,000
Accounts payable $ (1,278,000) $ (380,000)
Long-term debt (1,000,000) (1,200,000)
Common stock (8,200,000) (500,000)
Retained earnings, 12/31 (5,978,000) (2,855,000)
Total liabilities and equity $ (16,456,000) $ (4,935,000)
Required:
Determine the annual excess fair over book value amortization.
Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.
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