Question

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $15 per share). As of that date, Bradford had stockholders’ equity totaling $106,800. Land shown on Bradford’s accounting records was undervalued by $13,200. Equipment (with a five-year remaining life) was undervalued by $9,600. A secret formula developed by Bradford was appraised at $20,400 with an estimated life of 20 years. Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses. Allen Company Bradford Company Revenues $ (542,000 ) $ (220,000 ) Cost of goods sold 179,000 82,000 Depreciation expense 135,000 60,300 Subsidiary earnings (74,760 ) 0 Net income $ (302,760 ) $ (77,700 ) Retained earnings, 1/1/18 $ (792,000 ) $ (124,200 ) Net income (above) (302,760 ) (77,700 ) Dividends declared 175,500 40,000 Retained earnings ,12/31/18 $ (919,260 ) $ (161,900 ) Current assets $ 300,000 $ 88,000 Investment in Bradford 255,400 0 Company Land 490,000 72,000 Buildings and equipment (net) 744,000 164,000 Total assets $ 1,789,400 $ 324,000 Current liabilities $ (180,140 ) $ (97,100 ) Common stock (600,000 ) (60,000 ) Additional paid-in capital (90,000 ) (5,000 ) Retained earnings, 12/31/18 (919,260 ) (161,900 ) Total liabilities and equity $ (1,789,400 ) $ (324,000 ) a-1. Complete the table to show the allocation of the fair value in excess of book value. a-2. What balance will Allen show in its Subsidiary Earnings account? b. Complete the worksheet by consolidating the financial information for these two companies.

Answer 1

a -1	Accounts	Amount	Life	Annual Excess Amortization
	Land	13200	yrs
	Equipment	9600	5 Yrs	$1,920
	Formula	20400	20 yrs	$1,020
	Total	43200		$2,940
a-2	Equity Accrual	$161,900		Equipment
	Amortization Expense	($2,940)		(9600-1920*4 yrs)	$1,920
	Equity Earnings	$158,960		Formula
				(20400-1020*4 yrs)	$16,320
	Note:
	Acquisition date
	fair value
	(10000*$15.00)	$150,000
	Less Book Value	$106,800
	Fair Value in excess of Book Value	$43,200
B	Complete Worksheet
		Allen	Bradford		Eliminations		Eliminations	Consolidated
	Revenues	($542,000)	($220,000)					($762,000)
	Cost of Goods Sold	$179,000	$82,000					$261,000
	Amortization Expenses			(E)	$1,020			$1,020
	Depreciation Expenses	$135,000	$60,300	(E)	$1,920			$197,220
	Subsidiary earnings	($74,760)		(I)	$74,760			$0
	Net Income	($302,760)	($77,700)					($380,460)
	Retained Earnings 1/1	($792,000)	($124,200)	(S)	$124,200			($792,000)
	Net Income	($302,760)	($77,700)					($380,460)
	Dividends Declared	$175,500	$40,000			(D)	$40,000	$175,500
	Retained earnings 12/31	($919,260)	($161,900)					($919,260)
	Cash	$300,000	$88,000					$388,000
	Investment in Bradford	$255,400		(D)	$40,000	(S)	$189,200
						(A)	$31,440
						(I)	$74,760
	Formula			(A)	$16,320	(E)	$1,020	$15,300
	land	$490,000	$72,000	(A)	$13,200			$575,200
	Buildings and equipment	$744,000	$164,000	(A)	$1,920	(E)	$1,920	$908,000
	Total Assets	$1,789,400	$324,000					$1,886,500
	Current Liabilities	($180,140)	($97,100)					($277,240)
	Common Stock	($600,000)	($60,000)	(S)	$60,000			($600,000)
	APIC	($90,000)	($5,000)	(S)	$5,000			($90,000)
	Retained Earnings 12/31	($919,260)	($161,900)					($919,260)
	Total Liability and SE	($1,789,400)	($324,000)					($1,886,500)