Project Scenario Pecos Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash on January 1, 2017, when Suaro had the following balance sheet: At the acquisition date, the fair values of each identifiable asset and liability that differed from book value were as follows: Land $ 80,000 Brand name 60,000 (indefinite life—unrecognized on Suaro’s books) Software 415,000 (2-year estimated remaining useful life) In-process R&D 300,000 Additional Information Although at acquisition date Pecos expected future benefits from Suaro’s in-process research and development (R&D), by the end of 2017 it became clear that the research project was a failure with no future economic benefits. During 2017, Suaro earns $75,000 and pays no dividends. Selected amounts from Pecos and Suaro’s separate financial statements at December 31, 2018, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of December 31, 2018, two years subsequent to acquisition. Pecos’s January 1, 2018, Retained Earnings balance—before any effect from Suaro’s 2017 income—is $(930,000) (credit balance). Pecos has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at the beginning of the period. **Following is the consolidated information worksheet IN THE PICTURES Complete the worksheet as follows: Input the consolidated information worksheet provided and complete the fair-value allocation schedule by computing the excess amortizations for 2017 and 2018.

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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Project Scenario

Pecos Company acquired 100 percent of Suaro’s outstanding stock for $1,450,000 cash on January 1, 2017, when Suaro had the following balance sheet:

At the acquisition date, the fair values of each identifiable asset and liability that differed from book value were as follows:

Land $ 80,000

Brand name 60,000 (indefinite life—unrecognized on Suaro’s books)

Software 415,000 (2-year estimated remaining useful life)

In-process R&D 300,000

Additional Information

Although at acquisition date Pecos expected future benefits from Suaro’s in-process research and development (R&D), by the end of 2017 it became clear that the research project was a failure with no future economic benefits.

During 2017, Suaro earns $75,000 and pays no dividends.

Selected amounts from Pecos and Suaro’s separate financial statements at December 31, 2018, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of December 31, 2018, two years subsequent to acquisition.

Pecos’s January 1, 2018, Retained Earnings balance—before any effect from Suaro’s 2017 income—is $(930,000) (credit balance).

Pecos has 500,000 common shares outstanding for EPS calculations and reported $2,943,100 for consolidated assets at the beginning of the period.

**Following is the consolidated information worksheet IN THE PICTURES

Complete the worksheet as follows:

Input the consolidated information worksheet provided and complete the fair-value allocation schedule by computing the excess amortizations for 2017 and 2018.

Following is the consolidated information worksheet.
A
C
1 December 31, 2018, trial
balances
2
3
Ресos
Suaro
4 Revenues
$(1,052,000)
$ (427,000)
5 Operating expenses
6 Goodwill impairment loss
7 Income of Suaro
821,000
262,000
?
8 Net income
?
$ (165,000)
10 Retained earnings-Pecos 1/1/18
11 Retained earnings-Suaro 1/1/18
12 Net income (above)
13 Dividends declared
?
(201,000)
?
(165,000)
200,000
35,000
14 Retained earnings 12/31/18
$(331,000)
15
16 Cash
195,000
95,000
17 Receivables
18 Inventory
19 Investment in Suaro
247,000
143,000
415,000
197,000
?
20
21
22
23 Land
341,000
85,000
24 Equipment (net)
25 | Software
240,100
100,000
312,000

Transcribed Image Text:26 Other intangibles 145,000 27 Goodwill 28 Total assets ? $ 932,000 29 30 Liabilities (1,537,100) (251,000) 31 Common stock (500,000) (350,000) 32 Retained earnings (above) ? (331,000) 33 Total liabilities and equity $(932,000) 34 35 Fair-value alocation schedule 36 Price paid 37 Book value 1,450,000 476,000 38 Excess initial value 974,000 Amortizations 39 to land (10,000) 2017 2018 40 to brand name 60,000 ? A B 41 to software 100,000 ? 42 to IPR&D 300,000 ? ? 43 to goodwill 524,000 ? 44 45 Suaro's RE changes Income Dividends 46 2017 75,000 47 2018 165,000 35,000

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