Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,121,000 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 $2,060,000 including retained earnings of $1,560,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,121,000 Mathias stockholders' equity 2,060,000 Excess fair over book value $ 4,061,000 to unpatented technology (8-year remaining life) $ 896,000 to patents (10-year remaining life) 2,620,000 to increase long-term debt (undervalued, 5-year remaining life) (160,000 ) 3,356,000 Goodwill $ 705,000 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: Income Dividends 2020 $ 457,500 $ 25,000 2021 915,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Allison Mathias Income Statement Sales $ (6,640,000 ) $ (3,960,000 ) Cost of goods sold 4,668,000 2,539,000 Depreciation expense 935,000 313,000 Amortization expense 460,000 121,000 Interest expense 79,000 72,000 Equity earnings in Mathias (573,000 ) 0 Net income $ (1,071,000 ) $ (915,000 ) Statement of Retained Earnings Retained earnings 1/1 $ (5,460,000 ) $ (1,992,500 ) Net income (above) (1,071,000 ) (915,000 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,971,000 ) $ (2,857,500 ) Balance Sheet Cash $ 93,000 $ 161,000 Accounts receivable 1,010,000 255,000 Inventory 1,820,000 845,000 Investment in Mathias 6,734,500 0 Equipment (net) 3,820,000 2,094,000 Patents 125,000 0 Unpatented technology 2,185,000 1,510,000 Goodwill 467,000 0 Total assets $ 16,254,500 $ 4,865,000 Accounts payable $ (1,083,500 ) $ (307,500 ) Long-term debt (1,000,000 ) (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,971,000 ) (2,857,500 ) Total liabilities and equity $ (16,254,500 ) $ (4,865,000 ) 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, Inc., on January 1, 2020, in exchange for $6,121,000 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 $2,060,000 including retained earnings of $1,560,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,121,000 Mathias stockholders' equity 2,060,000 Excess fair over book value $ 4,061,000 to unpatented technology (8-year remaining life) $ 896,000 to patents (10-year remaining life) 2,620,000 to increase long-term debt (undervalued, 5-year remaining life) (160,000 ) 3,356,000 Goodwill $ 705,000 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: Income Dividends 2020 $ 457,500 $ 25,000 2021 915,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Allison Mathias Income Statement Sales $ (6,640,000 ) $ (3,960,000 ) Cost of goods sold 4,668,000 2,539,000 Depreciation expense 935,000 313,000 Amortization expense 460,000 121,000 Interest expense 79,000 72,000 Equity earnings in Mathias (573,000 ) 0 Net income $ (1,071,000 ) $ (915,000 ) Statement of Retained Earnings Retained earnings 1/1 $ (5,460,000 ) $ (1,992,500 ) Net income (above) (1,071,000 ) (915,000 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,971,000 ) $ (2,857,500 ) Balance Sheet Cash $ 93,000 $ 161,000 Accounts receivable 1,010,000 255,000 Inventory 1,820,000 845,000 Investment in Mathias 6,734,500 0 Equipment (net) 3,820,000 2,094,000 Patents 125,000 0 Unpatented technology 2,185,000 1,510,000 Goodwill 467,000 0 Total assets $ 16,254,500 $ 4,865,000 Accounts payable $ (1,083,500 ) $ (307,500 ) Long-term debt (1,000,000 ) (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,971,000 ) (2,857,500 ) Total liabilities and equity $ (16,254,500 ) $ (4,865,000 ) 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.

SWFT Comprehensive Volume 2019

42nd Edition

ISBN:9780357233306

Author:Maloney

Publisher:Maloney

Chapter20: Corporations: Distributions In Complete Liquidation And An Overview Of Reorganizations

Section: Chapter Questions

Problem 35P

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Problem 3-25 (Algo) (LO 3-1, 3-3a, 3-4)

At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary:


Consideration transferred				$	6,121,000
Mathias stockholders' equity					2,060,000
Excess fair over book value				$	4,061,000
to unpatented technology (8-year remaining life)	$	896,000
to patents (10-year remaining life)		2,620,000
to increase long-term debt (undervalued, 5-year remaining life)		(160,000	)		3,356,000
Goodwill				$	705,000

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:

	Income	Dividends
2020	$	457,500	$	25,000
2021		915,000		50,000

No asset impairments have occurred since the acquisition date.

Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

	Allison		Mathias
Income Statement
Sales	$	(6,640,000	)	$	(3,960,000	)
Cost of goods sold		4,668,000			2,539,000
Depreciation expense		935,000			313,000
Amortization expense		460,000			121,000
Interest expense		79,000			72,000
Equity earnings in Mathias		(573,000	)		0
Net income	$	(1,071,000	)	$	(915,000	)
Statement of Retained Earnings
Retained earnings 1/1	$	(5,460,000	)	$	(1,992,500	)
Net income (above)		(1,071,000	)		(915,000	)
Dividends declared		560,000			50,000
Retained earnings 12/31	$	(5,971,000	)	$	(2,857,500	)
Balance Sheet
Cash	$	93,000		$	161,000
Accounts receivable		1,010,000			255,000
Inventory		1,820,000			845,000
Investment in Mathias		6,734,500			0
Equipment (net)		3,820,000			2,094,000
Patents		125,000			0
Unpatented technology		2,185,000			1,510,000
Goodwill		467,000			0
Total assets	$	16,254,500		$	4,865,000
Accounts payable	$	(1,083,500	)	$	(307,500	)
Long-term debt		(1,000,000	)		(1,200,000	)
Common stock		(8,200,000	)		(500,000	)
Retained earnings 12/31		(5,971,000	)		(2,857,500	)
Total liabilities and equity	$	(16,254,500	)	$	(4,865,000	)

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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