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Allison Corporation acquired all of the outstanding voting stock of Mathias, Inc., on January 1, 2017, 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, Mathiass 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 book value					$	4,262,500
to unpatented technology (8-year remaining life)	$	1,000,000
to patents (10-year remaining life)		2,750,000
to increase long-term debt (undervalued, 5-year remaining life)		(225,000	)			3,525,000
Goodwill					$	737,500

Post-acquisition, 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
2017	$	433,125	$	25,000
2018		866,250		50,000

No asset impairments have occurred since the acquisition date.

Individual financial statements for each company as of December 31, 2018, appear below. Parentheses indicate credit balances. Dividends declared were paid in the same period.

	Allison				Mathias
Income Statement
Sales	$	(6,900,000	)		$	(4,025,000	)
Cost of goods sold		4,850,000				2,581,250
Depreciation expense		1,000,000				352,000
Amortization expense		492,500				140,500
Interest expense		105,000				85,000
Equity earnings in Mathias		(511,250	)			0
Net income	$	(963,750	)		$	(866,250	)
Statement of Retained Earnings
Retained earnings 1/1	$	(5,590,000	)		$	(2,033,125	)
Net income (above)		(963,750	)			(866,250	)
Dividends declared		560,000				50,000
Retained earnings 12/31	$	(5,993,750	)		$	(2,849,375	)
Balance Sheet
Cash	$	112,500			$	180,500
Accounts receivable		1,075,000				287,500
Inventory		1,950,000				910,000
Investment in Mathias		6,901,875				0
Equipment (net)		3,950,000				2,139,500
Patents		157,500				0
Unpatented technology		2,250,000				1,575,000
Goodwill		512,500				0
Total assets	$	16,909,375			$	5,092,500
Accounts payable	$	(1,715,625	)		$	(543,125	)
Long-term debt	$	(1,000,000	)		$	(1,200,000	)
Common stock		(8,200,000	)			(500,000	)
Retained earnings 12/31		(5,993,750	)			(2,849,375	)
Total liabilities and equity	$	(16,909,375	)		$	(5,092,500	)

Required:

Determine Allison's December 31, 2018, Investment in Mathias balance.

Prepare a worksheet to determine the consolidated values to be reported on Allisons financial statements.

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