Income Statement Sales Cost of goods sold Items 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 Allison $ (6,460,000) 4,542,000 890,000 437,500 61,000 (615,750) $ (1,145,250) Mathias $ (3,915,000) 2,509,750 286,000 107,500 63,000 0 $ (948,750) $ (5,370,000) $ (1,964,375) (1,145,250) 560,000 $ (5,955,250) $ 79,500 965,000 1,730,000 6,618,625 3,730,000 102,500 2,140,000 435,500 $ 15,801,125 $ (645,875) (1,000,000) (8,200,000) (5,955,250) Retained earnings, 12/31 Total liabilities and equity $ (15,801,125) (948,750) 50,000 $ (2,863,125) $ 147,500 232,500 800,000 0 2,062,500 1,465,000 0 $ 4,707,500 $ (144,375) (1,200,000) (500,000) (2,863,125) $ (4,707,500) 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 $5,936,500 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 $2,015,000 including retained earnings of $1,515,000. 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 unpatented technology (8-year remaining life) $ 5,936,500 2,015,000 $ 3,921,500 to patents (10-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 824,000 2,530,000 (115,000) 3,239,000 $ 682,500 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 2024 Income Dividends $ 474,375 $ 25,000 948,750 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 Sales Cost of goods sold Items 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 Allison $ (6,460,000) 4,542,000 890,000 437,500 61,000 (615,750) $ (1,145,250) Mathias $ (3,915,000) 2,509,750 286,000 107,500 63,000 0 $ (948,750) $ (5,370,000) $ (1,964,375) (1,145,250) 560,000 $ (5,955,250) $ 79,500 965,000 1,730,000 6,618,625 3,730,000 102,500 2,140,000 435,500 $ 15,801,125 $ (645,875) (1,000,000) (8,200,000) (5,955,250) Retained earnings, 12/31 Total liabilities and equity $ (15,801,125) (948,750) 50,000 $ (2,863,125) $ 147,500 232,500 800,000 0 2,062,500 1,465,000 0 $ 4,707,500 $ (144,375) (1,200,000) (500,000) (2,863,125) $ (4,707,500) 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 $5,936,500 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 $2,015,000 including retained earnings of $1,515,000. 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 unpatented technology (8-year remaining life) $ 5,936,500 2,015,000 $ 3,921,500 to patents (10-year remaining life) to increase long-term debt (undervalued, 5-year remaining life) Goodwill $ 824,000 2,530,000 (115,000) 3,239,000 $ 682,500 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 2024 Income Dividends $ 474,375 $ 25,000 948,750 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.

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

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 8MC

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