80.2K

Verified Solution

Link Copied!

On January 1, 2020, Prestige Corporation acquired 100 percent of the voting stock of Stylene Corporation in exchange for $2,244,000 in cash and securities. On the acquisition date, Stylene had the following balance sheet: Cash $ 23,000 Accounts payable $ 1,799,000 Accounts receivable 125,000 Inventory 181,000 Equipment (net) 2,180,000 Common stock 800,000 Trademarks 890,000 Retained earnings 800,000 Total assets $ 3,399,000 Total liabilities and equity $ 3,399,000 At the acquisition date, the book values of Stylenes assets and liabilities were generally equivalent to their fair values except for the following assets: Asset Book Value Fair Value Remaining Useful Life Equipment $ 2,180,000 $ 2,362,000 8 years Customer lists 0 213,000 4 years Trademarks 890,000 943,000 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 2020 $ 260,000 $ 25,000 2021 742,000 45,000 Dividends are declared and paid in the same period. The December 31, 2021, separate financial statements for each company follow. Parentheses indicate credit balances. Prestige Stylene Income Statement Revenues $ (4,860,000 ) $ (3,502,000 ) Cost of goods sold 2,630,000 2,480,000 Depreciation expense 506,000 280,000 Amortization expense 167,000 0 Equity earnings in Stylene (666,000 ) 0 Net income $ (2,223,000 ) $ (742,000 ) Statement of Retained Earnings Retained earnings 1/1 $ (3,650,000 ) $ (1,035,000 ) Net income (above) (2,223,000 ) (742,000 ) Dividends declared 150,000 45,000 Retained earnings 12/31 $ (5,723,000 ) $ (1,732,000 ) Balance Sheet Cash $ 540,000 $ 65,000 Accounts receivable 714,000 106,500 Inventory 938,000 464,000 Investment in Stylene 3,024,000 0 Equipment 6,280,000 1,672,500 Customer lists 143,000 0 Trademarks 2,810,000 940,000 Goodwill 199,000 0 Total assets $ 14,648,000 $ 3,248,000 Accounts payable $ (425,000 ) $ (716,000 ) Common stock (8,500,000 ) (800,000 ) Retained earnings, 12/31 (5,723,000 ) (1,732,000 ) Total liabilities and equity $ (14,648,000 ) $ (3,248,000 ) Determine the fair value in excess of book value for Prestiges acquisition date investment in Stylene. Determine Prestige's December 31, 2021, Investment in Stylene balance. Prepare a worksheet to determine the balances for Prestiges December 31, 2021, consolidated financial statements.

Answer & Explanation Solved by verified expert

See Answer