Question

On January 1, 2020, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $2,007,750 cash. On the acquisition date, GaugeRite had the following balance sheet:

Cash	$	87,000		Accounts payable	$	196,000
Accounts receivable		176,000		Long-term debt		993,000
Land		738,000		Common stock		1,009,000
Equipment (net)		1,898,000		Retained earnings		701,000
Total assets	$	2,899,000		Total liabilities and equity	$	2,899,000

At the acquisition date, the following allocation was prepared:

Fair value of consideration transferred				$	2,007,750
Book value acquired					1,710,000
Excess fair value over book value					297,750
To in-process research and development	$	53,750
To equipment (8-year remaining life)		124,000			177,750
To goodwill (indefinite life)				$	120,000

Although at acquisition date Procise had expected $53,750 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	$	(3,538,500	)		$	(1,139,500	)
Cost of goods sold		1,690,000				675,000
Depreciation expense		324,000				148,000
Other operating expenses		216,500				36,500
Subsidiary income		(264,500	)			0
Net income	$	(1,572,500	)		$	(280,000	)
Retained earnings 1/1/21	$	(3,100,000	)		$	(888,000	)
Net income		(1,572,500	)			(280,000	)
Dividends declared		200,000				25,225
Retained earnings 12/31/21	$	(4,472,500	)		$	(1,142,775	)
Cash	$	7,725			$	29,775
Accounts receivable		842,000				183,000
Inventory		962,000				510,000
Investment in GaugeRite		2,364,775				0
Land		3,457,500				756,000
Equipment (net)		5,005,000				1,945,000
Goodwill		371,000				0
Total assets	$	13,010,000			$	3,423,775
Accounts payable	$	(285,000	)		$	(431,000	)
Long-term debt		(3,102,500	)			(841,000	)
Common stock		(5,150,000	)			(1,009,000	)
Retained earnings 12/31/21		(4,472,500	)			(1,142,775	)
Total liabilities and equity	$	(13,010,000	)		$	(3,423,775	)

1. Show how Procise derived its December 31, 2021, Investment in GaugeRite account balance.

2. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2021.

Answer 1