Question

Please help I am lost. I`m not how to answer a, b or c

Problem 3-27 (Algo) (LO 3-1, 3-3a) On January 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,173,000 in cash and securities. On the acquisition date, Stylene had the following balance sheet: Accounts payable $ 1,537,100 Cash Accounts receivable Inventory Equipment (net) Trademarks Total assets $ 39,600 126,500 175,000 1,880,000 874,000 $ 3,095, 100 Common stock 800,000 Retained earnings 758,000 Total liabilities and equity $ 3,095,100 At the acquisition date, the book values of Stylene's assets and liabilities were generally equivalent to their fair values except for the following assets: Book Value $ 1,880,000 Asset Equipment Customer lists Trademarks Fair Value $ 2,047,000 206,000 960,000 Remaining Useful Life 8 years 4 years indefinite 874,000 During the next two years, Stylene has the following income and dividends in its own separately prepared financial reports to its parent. 2020 2021 Net Income $ 188,000 252,000 Dividends $ 25,000 45,000 Dividends are declared and paid in the same period. The December 31, 2021, separate financial statements for each company follow. Parentheses indicate credit balances. Prestige Stylene $(2,298,000) 1,620,000 426,000 Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Stylene Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared $ (6,080,000) 3,240,000 579,000 149,000 (179,625) $ (2,291,625) $ (252,000) $ $ (3,110,000) (2,291,625) 150,000 (921,000) (252,000) 45,000

Answer 1

(1) Calculation of the fair value in excess of book value for Prestige’s acquisition date investment in Stylene:

Particulars	Amount
Stylene acquisition-date fair value	$2,173,000
Stylene book value	($1,558,000)
Fair value in excess of book value	$615,000

Excess assigned to specific accounts based on fair value :

	Amount	Remaining Life	Annual Excess Amortization
Equipment	$167,000	8	$20,875
Customer list	$206,000	4	$51,500
Trademark	$86,000	Indefinite	0
Goodwill	$156,000	Indefinite	0
Total	$615,000		$72,375

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(2) Calculation of Prestige's December 31, 2021, Investment in Stylene balance :

Particulars	Amount	Amount
Fair value at 1/1/20		$2,173,000
Prestige's equity in Stylene earnings:
2020: ($188,000 - $72,375)	$115,625
2021: ($252,000 - 72,375)	$179,625
Post-acquisition earnings less excess amortization		$295,250
Stylene dividends since acquisition		($70,000)
Investment balance at 12/31/21		$2,398,250

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(3) Preparation of Consolidation worksheet :

	Prestige	Stylene	Consolidation Entries Debit	Consolidation Entries Credit	Consolidated Totals
Income Statement
Revenues	(6,080,000)	(2,298,000)			(8,378,000)
Cost of goods sold	3,240,000	1,620,000			4,860,000
Depreciation expense	579,000	426,000	20,875		1,025,875
Amortization expense	149,000	-	51,500		200,500
Equity earnings in Stylene	(179,625)	-	179,625		-
Net income	(2,291,625)	(252,000)			(2,291,625)
Statement of Retained Earnings
Retained earnings 1/1	(3,110,000)	(921,000)	921,000		(3,110,000)
Net income (above)	(2,291,625)	(252,000)			(2,291,625)
Dividends declared	150,000	45,000		45,000	150,000
Retained earnings 12/31	(5,251,625)	(1,128,000)			(5,251,625)
Balance Sheet
Cash	522,000	50,500			572,500
Accounts receivable	888,000	92,500			980,500
Inventory	913,000	532,000			1,445,000
Investment in Stylene	2,398,250	-	45,000	2,443,250	-
Equipment	6,120,000	1,672,500	146,125	20,875	7,917,750
Customer lists	122,000	-	154,500	51,500	225,000
Trademarks	3,360,000	954,000	86,000		4,400,000
Goodwill	204,000	-	156,000		360,000
Total assets	14,527,250	3,301,500			15,900,750
Accounts payable	(775,625)	(1,373,500)			(2,149,125)
Common stock	(8,500,000)	(800,000)	800,000		(8,500,000)
Retained earnings, 12/31	(5,251,625)	(1,128,000)			(5,251,625)
Total liabilities and equity	(14,527,250)	(3,301,500)	2,560,625	2,560,625	(15,900,750)

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