Question

On January 1, 2017, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,227,500 in cash and securities. On the acquisition date, Stylene had the following balance sheet:

  

Cash	$	31,200	Accounts payable	$	1,246,700
Accounts receivable		143,500
Inventory		182,000
Equipment (net)		1,560,000	Common stock		800,000
Trademarks		964,000	Retained earnings		834,000
	$	2,880,700		$	2,880,700

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:

Asset	Book Value		Fair Value		Remaining Useful Life
Equipment	$	1,560,000	$	1,690,000	8 years
Customer lists		0		214,000	4 years
Trademarks		964,000		1,026,500	indefinite

During the next two years, Stylene has the following income and dividends in its own separately prepared financial reports to its parent.

	Net Income		Dividends
2017	$	188,000	$	25,000
2018		530,000		45,000

Dividends are declared and paid in the same period. The December 31, 2018, separate financial statements for each company appear below. Parentheses indicate credit balances.

	Prestige				Stylene
Income Statement
Revenues	$	(5,620,000	)		$	(3,096,000	)
Cost of goods sold		3,010,000				2,190,000
Depreciation expense		578,000				376,000
Amortization expense		152,000				0
Equity earnings in Stylene		(460,250	)			0
Net income	$	(2,340,250	)		$	(530,000	)
Statement of Retained Earnings
Retained earnings 1/1	$	(3,250,000	)		$	(997,000	)
Net income (above)		(2,340,250	)			(530,000	)
Dividends declared		150,000				45,000
Retained earnings 12/31	$	(5,440,250	)		$	(1,482,000	)
Balance Sheet
Cash	$	594,000			$	64,000
Accounts receivable		856,000				102,000
Inventory		957,000				544,000
Investment in Stylene		2,736,000				0
Equipment		6,150,000				1,612,500
Customer lists		122,000				0
Trademarks		2,590,000				988,000
Goodwill		249,000				0
Total assets	$	14,254,000			$	3,310,500
Accounts payable	$	(313,750	)		$	(1,028,500	)
Common stock		(8,500,000	)			(800,000	)
Retained earnings, 12/31		(5,440,250	)			(1,482,000	)
Total liabilities and equity	$	(14,254,000	)		$	(3,310,500	)

1. Determine the fair value in excess of book value for Prestige’s acquisition date investment in Stylene.

2. Determine Prestige's December 31, 2018, Investment in Stylene balance.

3. Prepare a worksheet to determine the balances for Peregrine’s December 31, 2018, consolidated financial statements.

Answer 1