Question

On January 1, 2017, Allan Company bought a 15 percent interest in Sysinger Company. The acquisition price of $200,500 reflected an assessment that all of Sysinger’s accounts were fairly valued within the company’s accounting records. During 2017, Sysinger reported net income of $108,600 and declared cash dividends of $32,500. Allan possessed the ability to influence significantly Sysinger’s operations and, therefore, accounted for this investment using the equity method.

On January 1, 2018, Allan acquired an additional 80 percent interest in Sysinger and provided the following fair-value assessments of Sysinger’s ownership components:

Consideration transferred by Allan for 80% interest	$	1,417,600
Fair value of Allan's 15% previous ownership		265,800
Noncontrolling interest's 5% fair value		88,600
Total acquisition-date fair value for Sysinger Company	$	1,772,000

Also, as of January 1, 2018, Allan assessed a $410,000 value to an unrecorded customer contract recently negotiated by Sysinger. The customer contract is anticipated to have a remaining life of four years. Sysinger’s other assets and liabilities were judged to have fair values equal to their book values. Allan elects to continue applying the equity method to this investment for internal reporting purposes.

At December 31, 2018, the following financial information is available for consolidation:

	Allan Company				Sysinger Company
Revenues	$	(954,200	)		$	(394,000	)
Operating expenses		630,200				238,400
Equity earnings of Sysinger		(50,445	)			0
Gain on revaluation of Investment in Sysinger to fair value		(53,885	)			0
Net income	$	428,330			$	155,600
Retained earnings, January 1	$	(959,000	)		$	(622,400	)
Net income		(428,330	)			(155,600	)
Dividends declared		139,200				41,400
Retained earnings, December 31	$	(1,248,130	)		$	(736,600	)
Current assets	$	286,100			$	560,000
Investment in Sysinger (equity method)		1,694,515				0
Property, plant, and equipment		842,000				607,000
Patented technology		866,600				380,900
Customer contract		0				0
Total assets	$	3,689,215			$	1,547,900
Liabilities	$	(1,333,085	)		$	(88,900	)
Common stock		(912,000	)			(516,000	)
Additional paid-in capital		(196,000	)			(206,400	)
Retained earnings, December 31		(1,248,130	)			(736,600	)
Total liabilities and equities	$	(3,689,215	)		$	(1,547,900	)

1. How should Allan allocate Sysinger’s total acquisition-date fair value (January 1, 2018) to the assets acquired and liabilities assumed for consolidation purposes?

2. Calculate the following as they would appear in Allan's pre-consolidation 2018 statements.

3. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018.

Questions:

How should Allan allocate Sysinger’s total acquisition-date fair value (January 1, 2018) to the assets acquired and liabilities assumed for consolidation purposes?

	Fair value of Sysinger 1/1/18 ------------------? Book value of Sysinger 1/1/18 -----------------------------? Excess fair value over book value 0 To customer contract -----------------------------? To goodwill $0

Question No.2

Calculate the following as they would appear in Allan's pre-consolidation 2018 statements.

	Equity in earnings of Sysinger    ---------------? on revaluation of investment in Sysinger to fair value ----------------? Investment in Sysinger -----------------?

Question No.3 Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2018. At year-end, there were no intra-entity receivables or payables. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

Answer 1