Question

On January 3, 2018, Rome acquired all of the outstanding voiting stock of Paris in exchange for $6,000,000 in cash. Rome elected to exercise control over Paris as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 year ends. At the acquisition date, Paris' stockholder's equity was $2,500,000, including retained earnings of $1,700,000. Rome pursued the acquisition, in part, to utilize Paris' technology and computer software. These items had fair values that differed from their values on Paris' books as follows: Remaining Fair Value Life Asset Book Value Patented technology $ 140,000 $ 2,240,000 7 years Computer software $ 60,000 $ 1,260,000 12 years At December 31 2020, Paris owes Rome $70,000. Paris' remaining identifiable assets and liabilities had acquisiiton-date book values that closely approximated fair values. Since acquisition, no assts have been impaired. During the next three years, Paris reported the following income and dividends, which were paid: Net income Dividends 2018 $ 2019 $ 2020 $ 900,000 $ 940,000 $ 975,000 $ 150,000 150,000 150,000

Answer 1

Acquisition Analysis
Book Value	2500
Purchase price	6000
Goodwill	3500
Fair Value
Book Value	2500
Plus excess of book value	3300
Net asset fair value	5800
Purchase price	6000
Goodwill at FV	200

Excess amortisation/depreciation
Patented technology	=excess of fairvalue over book value/useful life
	=2100/7
	300
Computer software	=1200/12
	100

Acquisition differential amortisation and impairment schedule
	Patented technology	Differential	Computer software	Differential
	140	2100	60	1200
Amortisation/depreciation 2018	20	300	5	100
	120	1800	55	1100
Amortisation/depreciation 2019	20	300	5	100
	100	1500	50	1000
Amortisation/depreciation 2020	20	300	5	100
	80	1200	45	900

		Investment in Parish
2018
	Initial cost	6000	Dividends	150
	Net income	900	Excess amortisation/depreciation	400
			Balance	6350
		6900		6900
2019	Beg Balance	6350	Dividends	150
	Net income	940	Excess amortisation/depreciation	400
			Balance	6740
		7290		7290
2020	Beg balance	6740	Dividends	150
	Net income	975	Excess amortisation/depreciation	400
			Balance	7165
		7715		7715

Journal entries
Investment in Paris	575
To equity sub earnings		575
(Net income less excess amortisation)
Cash
To investment in Paris	150
(dividend received)		150

Net income
	Rome	Paris	Debit	Credit	Consolidated
Sales	2720	2250			4970
Investment in Sub earnings	575		575		0
Total revenue	3295	2250			4970
Cost of goods sold	1350	870			2220
Depreciation expense	275	380			655
Amortisation expense	370	25	400		795
Total expense	1995	1275			3670
Net income	1300	975			1300

Elimination entries
Investment in sub earnings	575
To dividend declare		150
To investment in subsidiary		425
Retained earnings 1/1	3240
Common stock	800
Differece (book & cost)	2700
To investment in Paris		6740
Patented technology	1500
Computer	1000
Goodwill	200
TO difference (book & cost)		2700
Liabilities	70
To current assets		70
Amortisation on patented technology	300
Depreciation on computer software	100
To Patented technology		300
To computer software		100

Retained earnings statement	Rome	Paris	Debit	Credit	Consolidated
Retained earnings 1/1	7470	3240	3240		7470
Net income	1300	975	975		1300
Dividend declared	600	150		150	600
Retained earnings12/31	8170	4065			8170

	Rome	Paris	Debit	Credit	Consolidated
Current Assets	490	375		70	795
Computer software	300	45	1000	100	1245
Patented technology	800	80	1500	300	2080
Goodwill	100		200		300
Equipment	1835	4500			6335
Investment in Paris	7165			7165	0
Total Assets	10690	5000			10755
Liabilities	520	135	70		585
Common Stock	2000	800	800		2000
Retained earnings	8170	4065	4065		8170
Total liabilities and equity	10690	5000			10755