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:

Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends:

No asset impairments have occurred since the acquisition date.

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

Required:

1. Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias.

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

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $196,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $647,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,050,000 in total. Seida’s January 1, 2021, book value equaled $1,900,000, although land was undervalued by $131,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $342,000 and declared and paid dividends of $102,000.

- Record acquisition of Seida stock.

- Record the 40% income earned during period by Seida.

- Record 2021 amortization for trademark excess fair value.

- Record dividend declaration from Seida.

- Record collection of dividend from investee.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $617,000 in cash. Annual excess amortization of $13,500 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $430,000, and Rambis reported a $228,000 balance. Herbert reported internal net income of $63,750 in 2020 and $75,850 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $22,600 in 2020 and $34,700 in 2021 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?
• What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2021?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $186,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $615,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $2,050,000 in total. Seida’s January 1, 2021, book value equaled $1,900,000, although land was undervalued by $134,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $319,000 and declared and paid dividends of $116,000.

Prepare the 2021 journal entries for Milani related to its investment in Seida.

1. Record acquisition of Seida stock.

2. Record the 40% income earned during period by Seida.

3. Record 2021 amortization for trademark excess fair value.

4. Record dividend declaration from Seida.

5. Record collection of dividend from investee.

JLB Enterprises acquired 15% of REB Corporation on January 1, 2020, for $63,000 when the book value of REB’s net assets was $360,000. During 2020, REB reported net income of $90,000 and paid dividends of $30,000. On January 1, 2021, JLB purchased an additional 25% of REB for $240,000. Any excess of cost over book value was attributable to goodwill (No amortization). On that same date, JLB changed to the equity method. During 2021, REB reported net income of $120,000 and paid dividends of $45,000.  

a. What investment income did JLB record from REB in 2020?

b. What investment income did JLB record from REB in 2021?

c. What journal entry was made on Jan 1 2021 as switch equity method?

d. What was the balance in Equity Investment at December 31, 2021? (Hint: use the amount paid for 25% of REB from JLB to calculate the implied fair value of the original 15% of the investment)

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 book value $ 3,937,000 to unpatented technology (8-year remaining life) $ 832,000 to patents (10-year remaining life) 2,540,000 to increase long-term debt (undervalued, 5-year remaining life) (120,000 ) 3,252,000 Goodwill $ 685,000 Postacquisition, Allison employs the equity method to account for its investment in Mathias. During the two years following the business combination, Mathias reports the following income and dividends: Income Dividends 2020 $ 472,500 $ 25,000 2021 945,000 50,000 No asset impairments have occurred since the acquisition date. Individual financial statements for each company as of December 31, 2021, follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Allison Mathias Income Statement Sales $ (6,480,000 ) $ (3,920,000 ) Cost of goods sold 4,556,000 2,513,000 Depreciation expense 895,000 289,000 Amortization expense 440,000 109,000 Interest expense 63,000 64,000 Equity earnings in Mathias (611,000 ) 0 Net income $ (1,137,000 ) $ (945,000 ) Statement of Retained Earnings Retained earnings 1/1 $ (5,380,000 ) $ (1,967,500 ) Net income (above) (1,137,000 ) (945,000 ) Dividends declared 560,000 50,000 Retained earnings 12/31 $ (5,957,000 ) $ (2,862,500 ) Balance Sheet Cash $ 81,000 $ 149,000 Accounts receivable 970,000 235,000 Inventory 1,740,000 805,000 Investment in Mathias 6,631,500 0 Equipment (net) 3,740,000 2,066,000 Patents 105,000 0 Unpatented technology 2,145,000 1,470,000 Goodwill 439,000 0 Total assets $ 15,851,500 $ 4,725,000 Accounts payable $ (694,500 ) $ (162,500 ) Long-term debt (1,000,000 ) (1,200,000 ) Common stock (8,200,000 ) (500,000 ) Retained earnings 12/31 (5,957,000 ) (2,862,500 ) Total liabilities and equity $ (15,851,500 ) $ (4,725,000 ) Required: Determine the fair value in excess of book value for Allison's acquisition date investment in Mathias. Prepare a worksheet to determine the consolidated values to be reported on Allison’s financial statements.

Milani, Inc., acquired 10 percent of Seida Corporation on January 1, 2020, for $188,000 and appropriately accounted for the investment using the fair-value method. On January 1, 2021, Milani purchased an additional 30 percent of Seida for $639,000 which resulted in significant influence over Seida. On that date, the fair value of Seida's common stock was $1,950,000 in total. Seida’s January 1, 2021, book value equaled $1,800,000, although land was undervalued by $132,000. Any additional excess fair value over Seida's book value was attributable to a trademark with an eight-year remaining life. During 2021, Seida reported income of $314,000 and declared and paid dividends of $106,000.

Prepare the 2021 journal entries for Milani related to its investment in Seida.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $631,000 in cash. Annual excess amortization of $14,100 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $415,000, and Rambis reported a $258,000 balance. Herbert reported an internal net income of $45,750 in 2020 and $58,450 in 2021 and declared $10,000 in dividends each year. Rambis reported a net income of $23,500 in 2020 and $36,200 in 2021 and declared $5,000 in dividends each year. a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? b. Under each of the following situations, what is the Investment in the Rambis account balance on Herbert’s books on January 1, 2021? The parent uses the equity method. The parent uses the partial equity method. The parent uses the initial value method. c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet? The parent uses the equity method. The parent uses the partial equity method. The parent uses the initial value method. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary. If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021? What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes? A) Consolidated retained earnings (equity method) =? Consolidated retained earnings (initial value method) =? Consolidated retained earnings (partial equity method) =? B) Investment Equity method =? Partial equity method =? Initial value method =? C) Prepare 3 journal entries

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $600,000 in cash. Annual excess amortization of $13,900 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $445,000, and Rambis reported a $251,000 balance. Herbert reported an internal net income of $42,000 in 2020 and $56,100 in 2021 and declared $10,000 in dividends each year. Rambis reported a net income of $24,200 in 2020 and $38,300 in 2021 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?
• What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2021?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

Herbert, Inc., acquired all of Rambis Company’s outstanding stock on January 1, 2020, for $599,000 in cash. Annual excess amortization of $17,000 results from this transaction. On the date of the takeover, Herbert reported retained earnings of $486,000, and Rambis reported a $220,000 balance. Herbert reported internal net income of $41,000 in 2020 and $55,600 in 2021 and declared $10,000 in dividends each year. Rambis reported net income of $27,500 in 2020 and $42,100 in 2021 and declared $5,000 in dividends each year.

a. Assume that Herbert’s internal net income figures above do not include any income from the subsidiary.

• If the parent uses the equity method, what is the amount reported as consolidated retained earnings on December 31, 2021?
• What would be the amount of consolidated retained earnings on December 31, 2021, if the parent had applied either the initial value or partial equity method for internal accounting purposes?

b. Under each of the following situations, what is the Investment in Rambis account balance on Herbert’s books on January 1, 2021?

• The parent uses the equity method.
• The parent uses the partial equity method.
• The parent uses the initial value method.

c. Under each of the following situations, what is Entry *C on a 2021 consolidation worksheet?

• The parent uses the equity method (journal entry)
• The parent uses the partial equity method. (journal entry)
• The parent uses the initial value method. (journal entry)