On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,980,000 cash. On the acquisition date, GaugeRite had the following balance sheet: Cash $ 14,000 Accounts payable $ 120,000 Accounts receivable 100,000 Long-term debt 930,000 Land 700,000 Common stock 1,000,000 Equipment (net) 1,886,000 Retained earnings 650,000 Total assets $ 2,700,000 Total liabilities and equity $ 2,700,000 At the acquisition date, the following allocation was prepared: Fair value of consideration transferred $ 1,980,000 Book value acquired 1,650,000 Excess fair value over book value 330,000 To in-process research and development $ 44,000 To equipment (8-year remaining life) 56,000 100,000 To goodwill (indefinite life) $ 230,000 Although at acquisition date Procise had expected $44,000 in future benefits from GaugeRite’s in-process research and development project, by the end of 2020 it was apparent that the research project was a failure with no future economic benefits. On December 31, 2021, Procise and GaugeRite submitted the following financial statements for consolidation. There were no intra-entity payables on that date. Procise GaugeRite Sales $ (3,500,000 ) $ (1,000,000 ) Cost of goods sold 1,600,000 630,000 Depreciation expense 350,000 130,000 Other operating expenses 190,000 30,000 Subsidiary income (203,000 ) 0 Net income $ (1,563,000 ) $ (210,000 ) Retained earnings 1/1/21 $ (3,000,000 ) $ (800,000 ) Net income (1,563,000 ) (210,000 ) Dividends declared 200,000 25,000 Retained earnings 12/31/21 $ (4,363,000 ) $ (985,000 ) Cash $ 228,000 $ 50,000 Accounts receivable 840,000 155,000 Inventory 900,000 580,000 Investment in GaugeRite 2,257,000 0 Land 3,500,000 700,000 Equipment (net) 4,785,000 1,700,000 Goodwill 290,000 0 Total assets $ 12,800,000 $ 3,185,000 Accounts payable $ (193,000 ) $ (400,000 ) Long-term debt (3,094,000 ) (800,000 ) Common stock (5,150,000 ) (1,000,000 ) Retained earnings 12/31/21 (4,363,000 ) (985,000 ) Total liabilities and equity $ (12,800,000 ) $ (3,185,000 ) Show how Procise derived its December 31, 2021, Investment in GaugeRite account balance. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2021.

On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,980,000 cash. On the acquisition date, GaugeRite had the following balance sheet: Cash $ 14,000 Accounts payable $ 120,000 Accounts receivable 100,000 Long-term debt 930,000 Land 700,000 Common stock 1,000,000 Equipment (net) 1,886,000 Retained earnings 650,000 Total assets $ 2,700,000 Total liabilities and equity $ 2,700,000 At the acquisition date, the following allocation was prepared: Fair value of consideration transferred $ 1,980,000 Book value acquired 1,650,000 Excess fair value over book value 330,000 To in-process research and development $ 44,000 To equipment (8-year remaining life) 56,000 100,000 To goodwill (indefinite life) $ 230,000 Although at acquisition date Procise had expected $44,000 in future benefits from GaugeRite’s in-process research and development project, by the end of 2020 it was apparent that the research project was a failure with no future economic benefits. On December 31, 2021, Procise and GaugeRite submitted the following financial statements for consolidation. There were no intra-entity payables on that date. Procise GaugeRite Sales $ (3,500,000 ) $ (1,000,000 ) Cost of goods sold 1,600,000 630,000 Depreciation expense 350,000 130,000 Other operating expenses 190,000 30,000 Subsidiary income (203,000 ) 0 Net income $ (1,563,000 ) $ (210,000 ) Retained earnings 1/1/21 $ (3,000,000 ) $ (800,000 ) Net income (1,563,000 ) (210,000 ) Dividends declared 200,000 25,000 Retained earnings 12/31/21 $ (4,363,000 ) $ (985,000 ) Cash $ 228,000 $ 50,000 Accounts receivable 840,000 155,000 Inventory 900,000 580,000 Investment in GaugeRite 2,257,000 0 Land 3,500,000 700,000 Equipment (net) 4,785,000 1,700,000 Goodwill 290,000 0 Total assets $ 12,800,000 $ 3,185,000 Accounts payable $ (193,000 ) $ (400,000 ) Long-term debt (3,094,000 ) (800,000 ) Common stock (5,150,000 ) (1,000,000 ) Retained earnings 12/31/21 (4,363,000 ) (985,000 ) Total liabilities and equity $ (12,800,000 ) $ (3,185,000 ) Show how Procise derived its December 31, 2021, Investment in GaugeRite account balance. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2021.

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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Cash	$	14,000	Accounts payable	$	120,000
Accounts receivable		100,000	Long-term debt		930,000
Land		700,000	Common stock		1,000,000
Equipment (net)		1,886,000	Retained earnings		650,000
Total assets	$	2,700,000	Total liabilities and equity	$	2,700,000

At the acquisition date, the following allocation was prepared:


Fair value of consideration transferred			$	1,980,000
Book value acquired				1,650,000
Excess fair value over book value				330,000
To in-process research and development	$	44,000
To equipment (8-year remaining life)		56,000		100,000
To goodwill (indefinite life)			$	230,000

Although at acquisition date Procise had expected $44,000 in future benefits from GaugeRite’s in-process research and development project, by the end of 2020 it was apparent that the research project was a failure with no future economic benefits.

On December 31, 2021, Procise and GaugeRite submitted the following financial statements for consolidation. There were no intra-entity payables on that date.

	Procise		GaugeRite
Sales	$	(3,500,000	)	$	(1,000,000	)
Cost of goods sold		1,600,000			630,000
Depreciation expense		350,000			130,000
Other operating expenses		190,000			30,000
Subsidiary income		(203,000	)		0
Net income	$	(1,563,000	)	$	(210,000	)
Retained earnings 1/1/21	$	(3,000,000	)	$	(800,000	)
Net income		(1,563,000	)		(210,000	)
Dividends declared		200,000			25,000
Retained earnings 12/31/21	$	(4,363,000	)	$	(985,000	)
Cash	$	228,000		$	50,000
Accounts receivable		840,000			155,000
Inventory		900,000			580,000
Investment in GaugeRite		2,257,000			0
Land		3,500,000			700,000
Equipment (net)		4,785,000			1,700,000
Goodwill		290,000			0
Total assets	$	12,800,000		$	3,185,000
Accounts payable	$	(193,000	)	$	(400,000	)
Long-term debt		(3,094,000	)		(800,000	)
Common stock		(5,150,000	)		(1,000,000	)
Retained earnings 12/31/21		(4,363,000	)		(985,000	)
Total liabilities and equity	$	(12,800,000	)	$	(3,185,000	)

Show how Procise derived its December 31, 2021, Investment in GaugeRite account balance.
Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2021.

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