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 $18.5 per share). As of that date, Bradford had stockholders’ equity totaling $128,100. Land shown on Bradford’s accounting records was undervalued by $15,800. Equipment (with a five-year remaining life) was undervalued by $8,300. A secret formula developed by Bradford was appraised at $32,800 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	$	(509,000	)		$	(241,250	)
Cost of goods sold		168,000				90,500
Depreciation expense		179,250				69,900
Subsidiary earnings		(77,550	)			0
Net income	$	(239,300	)		$	(80,850	)
Retained earnings, 1/1/18	$	(856,000	)		$	(119,100	)
Net income (above)		(239,300	)			(80,850	)
Dividends declared		175,500				40,000
Retained earnings ,12/31/18	$	(919,800	)		$	(159,950	)
Current assets	$	280,000			$	93,500
Investment in Bradford		265,350				0
Company
Land		510,000				64,800
Buildings and equipment (net)		786,000				182,000
Total assets	$	1,841,350			$	340,300
Current liabilities	$	(231,550	)		$	(115,350	)
Common stock		(600,000	)			(60,000	)
Additional paid-in capital		(90,000	)			(5,000	)
Retained earnings, 12/31/18		(919,800	)			(159,950	)
Total liabilities and equity	$	(1,841,350	)		$	(340,300	)

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

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

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

Answer 1

Allen Company Requirement a.1. Accounts Equipment Building Stockholders Equity Land Annual Excess Amortizations 1660 1640 Amount 8300 32800 -96850 15800 -39950 Life 5 years 20 years Infinity Infinity Total 3300 Requirement a.2. Retained earnings 1/1/18 Net income Dividends declared Equity earnings 12/31/2018 -119100 -80850 40000 159950

Requirement a.3. Consolidation Worksheet For Year Ending December 31, 2018 Allen Co. Bradford Co. Debit Credit Consolidated Totals Accounts Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity in subsidiary earnings Net income -509000 -241250 168000 90500 17925069900 -750250 258500 - 750250 258500 249150 249150 0 -77550 -77550 -239300 -77550 -320150 -80850 Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 -975100 -320150 -856000 -239300 175500 -919800 -119100 -80850 40000 - 159950 -975100 -320150 215500 -1079750 215500 -1079750 93500 373500 265350 590600 1000800 373500 265350 590600 1000800 80600 214800 0 Balance Sheet Current assets 280000 Investment in Bradford Co. 265350 Land 510000 Buildings and equipment (net) 786000 Formula Total assets 1841350 Net assets fair value adjustment Current liabilities -231550 Common stock -600000 Additional paid-in capital -90000 Retained earnings 12/31 -919800 Total liabilities and equity -1841350 2230250 2230250 -24100 388900 -24100 -115350 -60000 -5000 - 159950 -340300 -24100 -346900 -660000 -95000 -1079750 -2181650 -346900 -660000 -95000 -1079750 -2181650