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Allison Corporation acquired all of the outstanding voting stock of Mathias, Incorporated, on January $1,2023,$ in exchange for $$6,080,000$ in cash. Allison intends to maintain Mathias as a wholly owned subsidiary. Both companies have December $31$ fiscal year$-$ends. At the acquisition date, Mathias$$s stockholders$$ equity was $$2,050,000$ including retained earnings of $$1,550,000.$

At the acquisition date, Allison prepared the following fair$-$value allocation schedule for its newly acquired subsidiary:

Consideration transferred $ $6,080,000$

Mathias stockholders' equity $2,050,000$

Excess fair over book value $ $4,030,000$

to unpatented technology $(8-$year remaining life$)$ $ $880,000$

to patents $(10-$year remaining life$)2,600,000$

to increase long$-$term debt $($undervalued$,5-$year remaining life$)(150,000)3,330,000$

Goodwill $ $700,000$

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:

Year Income Dividends

$2023$ $ $461,250$ $ $25,000$

$2024922,50050,000$

No asset impairments have occurred since the acquisition date.

Individual financial statements for each company as of December $31,2024,$ follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Items Allison Mathias

Income Statement

Sales $ $(6,600,000)$ $ $(3,950,000)$

Cost of goods sold $4,640,0002,532,500$

Depreciation expense $925,000307,000$

Amortization expense $455,000118,000$

Interest expense $75,00070,000$

Equity earnings in Mathias $(582,500)0$

Net income $ $(1,087,500)$ $ $(922,500)$

Statement of Retained Earnings

Retained earnings, $1/1$ $ $(5,440,000)$ $ $(1,986,250)$

Net income $($above$)(1,087,500)(922,500)$

Dividends declared $560,00050,000$

Retained earnings, $12/31$ $ $(5,967,500)$ $ $(2,858,750)$

Balance Sheet

Cash $ $90,000$ $ $158,000$

Accounts receivable $1,000,000250,000$

Inventory $1,800,000835,000$

Investment in Mathias $6,708,7500$

Equipment $($net$)3,800,0002,087,000$

Patents $120,0000$

Unpatented technology $2,175,0001,500,000$

Goodwill $460,0000$

Total assets $ $16,153,750$ $ $4,830,000$

Accounts payable $ $(986,250)$ $ $(271,250)$

Long$-$term debt $(1,000,000)(1,200,000)$

Common stock $(8,200,000)(500,000)$

Retained earnings, $12/31(5,967,500)(2,858,750)$

Total liabilities and equity $ $(16,153,750)$ $ $(4,830,000)$

Required:

Determine the annual excess fair over book value amortization.

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

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