Question

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $25 per share). As of that date, Bradford had stockholders’ equity totaling $199,150. Land shown on Bradford’s accounting records was undervalued by $16,200. Equipment (with a five-year remaining life) was undervalued by $7,850. A secret formula developed by Bradford was appraised at $26,800 with an estimated life of 20 years.

Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses.

	Allen Company	Bradford Company
Revenues	$ (545,000)	$(245,000)
Cost of goods sold	180,000	92,000
Depreciation expense	135,000	69,600
Subsidiary earnings	(80,490)	0
Net income	$(310,490)	$(83,400)
Retained earnings, 1/1/18	$(714,000)	$(116,400)
Net income (above)	(310,490)	(83,400)
Dividends declared	175,500	40,000
Retained earnings, 12/31/18	$(848,990)	$(159,800)
Current assets	$324,000	$121,500
Investment in Bradford	$261,100	0
Company
Land	604,000	82,200
Buildings and equipment (net)	766,000	213,000
Total assets	$1,955,100	$416,700
Current liabilities	$(416,110)	$(191,900)
Common stock	(600,000)	(60,000)
Additional paid-in capital	(90,000)	(5,000)
Retained earnings, 12/31/18	(848,990)	(159,800)
Total liabilities and equity	$(1,955,100)	$(416,700)

a-1. Complete the table to show the allocation of the fair value in excess of book value.

a-2. What balance will Allen show in its Subsidiary Earnings account?

b. Complete the worksheet by consolidating the financial information for these two companies.

Answer 1