Income Statement Revenues Items Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity Required: Persoff $ (2,760,000) 1,369,600 Sea Cliff $ (2,270,000) 877,600 388,000 285,000 382,000 29,000 (515,400) 0 $ (975,400) $ (1,238,800) $ (7,490,000) $ (3,262,800) (1,238,800) 600,000 $ (8,128,800) $ 508,000 7,638,200 320,000 824,000 108,000 1,849,000 $ 11,247,200 $ (1,118,400) (2,000,000) (8,128,800) $ (11,247,200) (975,400) 150,000 $ (4,088,200) $ 385,000 51,000 88,000 0 4,540,000 $ 5,064,000 $ (175,800) (800,000) (4,088,200) $ (5,064,000) a. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff. b. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2024. c. Determine Persoff's December 31, 2024, Investment in Sea Cliff's balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. On January 3, 2022, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Incorporated, in exchange for $6,652,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,522,000 including retained earnings of $1,722,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These items had fair values that differed from their values on Sea Cliff's books as follows: Asset Patented technology Computer software Book Value $ 150,000 Fair Value $ 2,390,000 Remaining Useful Life 7 years $ 66,000 $ 1,746,000 12 years Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: Year Net Income Dividends 2022 2023 2024 $ 900,400 $ 150,000 940,400 975,400 150,000 150,000 December 31, 2024, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Income Statement Revenues Items Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity Required: Persoff $ (2,760,000) 1,369,600 Sea Cliff $ (2,270,000) 877,600 388,000 285,000 382,000 29,000 (515,400) 0 $ (975,400) $ (1,238,800) $ (7,490,000) $ (3,262,800) (1,238,800) 600,000 $ (8,128,800) $ 508,000 7,638,200 320,000 824,000 108,000 1,849,000 $ 11,247,200 $ (1,118,400) (2,000,000) (8,128,800) $ (11,247,200) (975,400) 150,000 $ (4,088,200) $ 385,000 51,000 88,000 0 4,540,000 $ 5,064,000 $ (175,800) (800,000) (4,088,200) $ (5,064,000) a. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff. b. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2024. c. Determine Persoff's December 31, 2024, Investment in Sea Cliff's balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. On January 3, 2022, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Incorporated, in exchange for $6,652,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,522,000 including retained earnings of $1,722,000. Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These items had fair values that differed from their values on Sea Cliff's books as follows: Asset Patented technology Computer software Book Value $ 150,000 Fair Value $ 2,390,000 Remaining Useful Life 7 years $ 66,000 $ 1,746,000 12 years Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: Year Net Income Dividends 2022 2023 2024 $ 900,400 $ 150,000 940,400 975,400 150,000 150,000 December 31, 2024, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

SWFT Corp Partner Estates Trusts

42nd Edition

ISBN:9780357161548

Author:Raabe

Publisher:Raabe

Chapter8: Consolidated Tax Returns

Section: Chapter Questions

Problem 36P

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