Question

Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,100,500 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 $2,055,000 including retained earnings of $1,555,000.

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

Consideration transferred					$	6,100,500
Mathias stockholders' equity						2,055,000
Excess fair over book value					$	4,045,500
to unpatented technology (8-year remaining life)	$	888,000
to patents (10-year remaining life)		2,610,000
to increase long-term debt (undervalued, 5-year remaining life)		(155,000	)			3,343,000
Goodwill					$	702,500

Post-acquisition, 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
2017	$	459,375	$	25,000
2018		918,750		50,000

No asset impairments have occurred since the acquisition date.

Individual financial statements for each company as of December 31, 2018, appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period.

	Allison				Mathias
Income Statement
Sales	$	(6,620,000	)		$	(3,955,000	)
Cost of goods sold		4,654,000				2,535,750
Depreciation expense		930,000				310,000
Amortization expense		457,500				119,500
Interest expense		77,000				71,000
Equity earnings in Mathias		(577,750	)			0
Net income	$	(1,079,250	)		$	(918,750	)
Statement of Retained Earnings
Retained earnings 1/1	$	(5,450,000	)		$	(1,989,375	)
Net income (above)		(1,079,250	)			(918,750	)
Dividends declared		560,000				50,000
Retained earnings 12/31	$	(5,969,250	)		$	(2,858,125	)
Balance Sheet
Cash	$	91,500			$	159,500
Accounts receivable		1,005,000				252,500
Inventory		1,810,000				840,000
Investment in Mathias		6,721,625				0
Equipment (net)		3,810,000				2,090,500
Patents		122,500				0
Unpatented technology		2,180,000				1,505,000
Goodwill		463,500				0
Total assets	$	16,204,125			$	4,847,500
Accounts payable	$	(1,034,875	)		$	(289,375	)
Long-term debt	$	(1,000,000	)		$	(1,200,000	)
Common stock		(8,200,000	)			(500,000	)
Retained earnings 12/31		(5,969,250	)			(2,858,125	)
Total liabilities and equity	$	(16,204,125	)		$	(4,847,500	)

Required:

1. Determine Allison's December 31, 2018, Investment in Mathias balance.

2. Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.

Answer 1

Pogeno Answert Alligion's December 31, 2018 Investment in Mathias balance = Purchase consideration paid to Hathias + Mathias Income - dividends declared by Mathias = 6,100, 500 +918,450 - 50,000 = 6969250 Allison Amount cash 91500+159500 = 251000 Accounts Receivable 1005000 + 252500 - 1257500 Inventory 1810000 + 840000 = 26 50000 Equipment (net) 3,810,000 + 2090500 = 590 OSCO | Patents 122,500 + 0 = 122,500 unpatented I Technology 2180000+ 1505000 - 3685000

Pagano@ Amount 463500+ 0 = 463500 Goodwill Total assets 16,204,125 + 4,844,500 = 21051625 Accounts payable 1,034,875 + 889375 = 1324250 Longterm debt 1,000,000 + 1,200,000 = 2,200.000 common stock 8,200,000 + 500,000 = 8,700.000 Retained Earnis 12131 5,450,000 Total liabilities.13242 50 +2,200,000 +8,400,000 and Equity + 5,450,000 = 17,674,250