Question

On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $7,141,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,538,500 including retained earnings of $1,738,500.

Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:

Asset	Book Value		Fair Value		Remaining Useful Life
Patented technology	$	157,500	$	2,502,500	7 years
Computer software		70,500		2,110,500	12 years

Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends:

	Net Income		Dividends
2016	$	900,700	$	150,000
2017		940,700		150,000
2018		975,700		150,000

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

	Persoff				Sea Cliff
Income Statement
Revenues	$	(2,790,000	)		$	(2,285,000	)
Cost of goods sold		1,384,300				883,300
Depreciation expense		292,500				394,000
Amortization expense		391,000				32,000
Equity earnings in Sea Cliff		(470,700	)			0
Net income	$	(1,192,900	)		$	(975,700	)
Statement of Retained Earnings
Retained earnings 1/1	$	(7,505,000	)		$	(3,279,900	)
Net income (above)		(1,192,900	)			(975,700	)
Dividends declared		600,000				150,000
Retained earnings 12/31	$	(8,097,900	)		$	(4,105,600	)
Balance Sheet
Current assets	$	521,500			$	392,500
Investment in Sea Cliff		7,993,100				0
Computer software		335,000				55,500
Patented technology		842,000				94,000
Goodwill		114,000				0
Equipment		1,859,500				4,570,000
Total assets	$	11,665,100			$	5,112,000
Liabilities	$	(1,567,200	)		$	(206,400	)
Common stock		(2,000,000	)			(800,000	)
Retained earnings 12/31		(8,097,900	)			(4,105,600	)
Total liabilities and equity	$	(11,665,100	)		$	(5,112,000	)

Note: Parentheses indicate a credit balance.

1. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff.

2. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2018.

3. Determine Persoff's December 31, 2018, Investment in Sea Cliff's balance.

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

Answer 1

solution page-1 * Given data - >> Persoff corporation acquired all of the outstanding voting stock of sea cliff. "1) To determine the - of book value for data investment fair value in excess persoff's acquisition in sea diff. Seacliff Acquisiton Data $ 7,149,000 , fair value Less: seacliff book Value $ 2,538,500 Ifair value in excess of $4,602,500 book value Excess assigned to speci 1-fic account based fair value -lon Patented technology ( $2,502, 500 - $157,500) computer software ($2,110,500 - $ 70,500) Goodwill $ 217,500 indefini - $ 505,000 life Amortizat $2,345,000 7 $ 335,000 $2,040,000 12 $ 170,000

Page 2 2) To determine persoff's equity earnings in sea cliff's balance for the year ended December 31, 2018 – → Because persoff use equity method, the $470, 700 "Equity Earnings in sea diff" -) Reflects a $975,700 equity accrual (100% of sea diff's reported earnings ) less $ 505,000 in excess amortization expense computed above. To determine Investment in sea diff_ fair value at 1/1/16 $ 7,141,000.00 persoff's Equity in sea (net of amortization) dif 2016 $ 395, 700 2017 $ 435, 700 2018 $ 470, 700 Post acquisiton earnings net of amortisation $1,302,100.00 sea cliff dividents since acquisiton $ 450,000.00 Investment balance 12/3118 $ 7,993,100.00

fage-3 consolidated To consolidation Entoies persoff seadliff Debit credit Income statement Revenues $ 2,790,000 $ 2,285,000 cost of good sold $1,384,300 $ 883,300 De Priciation Expense $ 292,500 $ 394,000 Amortisation Expense $ 391,000 $ 32,000 (E $ 505,000 Equity Earnings In Sea cliff $ 470,700 (1) $470.700 Net Income ($ 1,192,900 $ 975,700 $ 5,075,000 $ 2,267,600 $ 686,500 $ 928,000 $ - ($ 1192,900) 1. statement of retained fornings Retained Earnings 1/1 1. Net income Dividends Deciated Retained Earnings 12/31 $ 7,505,000 $3,274,900 $) $3,279,900 $1,192,900 $ 975,700 $ 600,000 $ 150,000 10 $ 8,097,900 $ 4,105,600 $ $ $ 7,505,000 1,192,900 600,000 8,097,900) $ 150,000 Balance sheet cudvent Assets Investment in Sea Cliff computer Software Patended Technology Goodwill Equipment Total Assets Tre $ 521,500 $ 392,500 $7,993,100 $ - $ 150,000 $ 470,700 $4,079.900 A $3,592,500 $ 335,000 $ 55,500 A $1,700,000 € $ 170.000 $842,000 $ 94,000 $1,675,000 $ 335,000 $ 114,000 4 $ 217,500 $ 1,854,500 $4,570,000 ($ 11,665,100 (15,112,000) $1,567,200 $ 206,400 $2,000,000 $800,000 (3) $ 800,000 $8,097,900 $4, 105, 60o $11,665,100 $5,112,000) $ 1.920,500 $_2,276,000 $ 331,500 $ 6,429.500 $11.871,500) $ 1,773,600 $ 2,000,000 $ 8,097,900 $ 11,871,500 Liabilities common stock I retained Earnings 12/31 Total liabilities of Equities - X Please give os positive like.