Question

In: Accounting

On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...

On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $7,793,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,560,500 including retained earnings of $1,760,500.

Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had fair values that differed from their values on Sea Cliff’s books as follows:

Asset Book Value Fair Value Remaining
Useful Life
Patented technology $ 167,500 $ 2,652,500 7 years
Computer software $ 76,500 $ 2,596,500 12 years


Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends:

Net Income Dividends
2019 $ 901,100 $ 150,000
2020 941,100 150,000
2021 976,100 150,000

December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Persoff Sea Cliff
Income Statement
Revenues $ (2,830,000 ) $ (2,305,000 )
Cost of goods sold 1,403,900 890,900
Depreciation expense 302,500 402,000
Amortization expense 403,000 36,000
Equity earnings in Sea Cliff (411,100 ) 0
Net income $ (1,131,700 ) $ (976,100 )
Statement of Retained Earnings
Retained earnings 1/1 $ (7,525,000 ) $ (3,302,700 )
Net income (above) (1,131,700 ) (976,100 )
Dividends declared 600,000 150,000
Retained earnings 12/31 $ (8,056,700 ) $ (4,128,800 )
Balance Sheet
Current assets $ 539,500 $ 402,500
Investment in Sea Cliff 8,466,300 0
Computer software 355,000 61,500
Patented technology 866,000 102,000
Goodwill 122,000 0
Equipment 1,873,500 4,610,000
Total assets $ 12,222,300 $ 5,176,000
Liabilities $ (2,165,600 ) $ (247,200 )
Common stock (2,000,000 ) (800,000 )
Retained earnings 12/31 (8,056,700 ) (4,128,800 )
Total liabilities and equity $ (12,222,300 ) $ (5,176,000 )

Note: Parentheses indicate a credit balance.

  1. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff.

  2. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2021.

  3. Determine Persoff's December 31, 2021, Investment in Sea Cliff's balance.

  4. Prepare a worksheet to determine the consolidated values to be reported on Persoff’s financial statements.

Solutions

Expert Solution


Related Solutions

On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...
On January 3, 2016, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc. in exchange for $7,467,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was $2,549,500 including retained earnings of $1,749,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff’s technology and computer software. These items had...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company in exchange for $726,000 cash. At that time, although Williams book value was $560,000, Roberts assessed Williams total business fair value at $726,000. The book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account which was undervalued by $100,000. The undervalued equipment had a 5-year remaining life at the acquisition date. Any remaining excess fair value...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company in exchange for $726,000 cash. At that time, although Williams book value was $560,000, Roberts assessed Williams total business fair value as $726,000. The book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account which was undervalued by $100,000. The undervalued equipment had a 5-year remaining life at the acquisition date. Any remaining excess fair value...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company...
On January 1, 2019 Roberts Corporation acquired 100% of the outstanding voting stock of Williams Company in exchange for $726,000 cash. At that time, although Williams book value was $560,000, Roberts assessed Williams total business fair value at $726,000. The book values of Williams individual assets and liabilities approximated their acquisition-date fair values except for the equipment account which was undervalued by $100,000. The undervalued equipment had a 5-year remaining life at the acquisition date. Any remaining excess fair value...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,305,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,105,000 including retained earnings of $1,605,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,305,500 Mathias stockholders' equity 2,105,000 Excess fair...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,039,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,040,000 including retained earnings of $1,540,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,039,000 Mathias stockholders' equity 2,040,000 Excess fair over...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,387,500 Mathias stockholders' equity 2,125,000 Excess fair over...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $6,387,500 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,125,000 including retained earnings of $1,625,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,387,500 Mathias stockholders' equity 2,125,000 Excess fair over...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, in exchange for $6,162,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,070,000 including retained earnings of $1,570,000. At the acquisition date, Allison prepared the following fair value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 6,162,000 Mathias stockholders' equity 2,070,000 Excess fair...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020,...
Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2020, in exchange for $5,957,000 in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December 31 fiscal year-ends. At the acquisition date, Mathias’s stockholders’ equity was $2,020,000 including retained earnings of $1,520,000. At the acquisition date, Allison prepared the following fair-value allocation schedule for its newly acquired subsidiary: Consideration transferred $ 5,957,000 Mathias stockholders' equity 2,020,000 Excess fair over...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT