Cash $ 24,800 Accounts payable $ 1,891,800 Accounts receivable 102,000 Inventory 223,000 Equipment (net) 2,310,000 Common stock 800,000 Trademarks 920,000 Retained earnings 888,000 Total assets $ 3,579,800 Total liabilities and equity $ 3,579,800 At the acquisition date, the book values of S's assets and liabilities were generally equivalent to their fair values except for the following assets:
On January 1, 2025, P Corporation acquired 100 percent of the voting stock of S Corporation in exchange for $2,347,500 in cash and securities. On the acquisition date, S had the following balance sheet:
| Cash | $ | 24,800 | Accounts payable | $ | 1,891,800 |
| 102,000 | |||||
| Inventory | 223,000 | ||||
| Equipment (net) | 2,310,000 | Common stock | 800,000 | ||
| Trademarks | 920,000 | 888,000 | |||
| Total assets | $ | 3,579,800 | Total liabilities and equity | $ | 3,579,800 |
At the acquisition date, the book values of S's assets and liabilities were generally equivalent to their fair values except for the following assets:
| Asset | Book Value | Fair Value | Remaining Useful Life |
||
| Equipment | $ | 2,310,000 | $ | 2,483,000 | 8 years |
| Customer lists | 0 | 234,000 | 4 years | ||
| Trademarks | 920,000 | 1,009,500 | indefinite | ||
During the next two years, S has the following income and dividends in its own separately prepared financial reports to its parent.
| Net Income | Dividends | |||
| 2025 | $ | 240,000 | $ | 25,000 |
| 2026 | 238,000 | 45,000 | ||
Dividends are declared and paid in the same period. The December 31, 2026, separate financial statements for each company follow. Parentheses indicate credit balances.
| P | S | ||||||
| Income Statement | |||||||
| Revenues | $ | (4,780,000 | ) | $ | (2,326,000 | ) | |
| Cost of goods sold | 2,590,000 | 1,640,000 | |||||
| 552,000 | 448,000 | ||||||
| Amortization expense | 116,000 | 0 | |||||
| Equity earnings in S | (157,875 | ) | 0 | ||||
| Net income | $ | (1,679,875 | ) | $ | (238,000 | ) | |
| Statement of Retained Earnings | |||||||
| Retained earnings 1/1 | $ | (3,570,000 | ) | $ | (1,103,000 | ) | |
| Net income (above) | (1,679,875 | ) | (238,000 | ) | |||
| Dividends declared | 150,000 | 45,000 | |||||
| Retained earnings 12/31 | $ | (5,099,875 | ) | $ | (1,296,000 | ) | |
| Balance Sheet | |||||||
| Cash | $ | 542,000 | $ | 52,500 | |||
| Accounts receivable | 736,000 | 101,000 | |||||
| Inventory | 929,000 | 558,000 | |||||
| Investment in S | 2,595,250 | 0 | |||||
| Equipment | 6,010,000 | 1,740,000 | |||||
| Customer lists | 168,000 | 0 | |||||
| Trademarks | 3,150,000 | 994,000 | |||||
| 260,000 | 0 | ||||||
| Total assets | $ | 14,390,250 | $ | 3,445,500 | |||
| Accounts payable | $ | (790,375 | ) | $ | (1,349,500 | ) | |
| Common stock | (8,500,000 | ) | (800,000 | ) | |||
| Retained earnings, 12/31 | (5,099,875 | ) | (1,296,000 | ) | |||
| Total liabilities and equity | $ | (14,390,250 | ) | $ | (3,445,500 | ) | |
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Determine the fair value in excess of book value for P's acquisition date investment in S. ANSWER: 659,500
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Determine P's December 31, 2026, Investment in S balance. FAIR VALUE: 2,347,500; POST ACQUISITION EARNINGS LESS EXCESS AMORTIZATION ?; S DIVIDENDS SINCE ACQUISITION ?; INVESTMENT IN S ?
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Prepare a worksheet to determine the balances for P's December 31, 2026, consolidated financial statements.
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