On January 1, 2017, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $1,980,000 cash. On the acquisition date, GaugeRite had the following balance sheet:

At the acquisition date, the following allocation was prepared:
Fair value of consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,980,000
Book value acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,650,000
Excess fair value over book value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,000
To in-process research and development . . . . . . . . . . . . . . . . . . . . .$44,000
To equipment (8-year remaining life) . . . . . . . . . . . . . . . . . . . . . . . 56,000 . . . . . 100,000
To goodwill (indefinite life) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 230,000
Although at acquisition date Procise had expected $44,000 in future benefits from GaugeRite's in-process research and development project, by the end of 2017 it was apparent that the research project was a failure with no future economic benefits.
On December 31, 2018, Procise and GaugeRite submitted the following trial balances for consolidation. There were no intra-entity payables on that date.

a. Show how Procise derived its December 31, 2018, Investment in GaugeRite account balance.
b. Explain the treatment of the acquired in-process research and development.
c. Prepare a consolidated worksheet for Procise and GaugeRite as of December 31, 2018.

Transcribed Image Text:

Cash Accounts receivable. laki Equipment (net) $ 14,000 100,000 700,000 1,886,000 2./00,00X) Accounts payable Long-term debt Common stock Retained earnings.. $ 120,000 930,000 1,000,000 650,000 2./00,00X) Procise GaugeRlte Sales Cost of goods sold Depreciation expense Other operating expenses Subsidiary income $ (3,500,000) 1,600,000 350,000 190,000 $1,000,000) 630,000 130,000 30,000 03 Net income .$1.563 $ (210 Retained earnings 1/1/18 Net income Dividends declared. $ (3,000,000) (1,563,000) 200,000 $ (800,000) (210,000) 25,000 $ (985 Retained earnings 12/31/18 Cash Accounts receivable Inventory Investment in GaugeRite Land Equipment (net)..- . Goodwil $228,000 840,000 900,000 2,257,000 3,500,000 4,785,000 290,000 $12,800,000 $50,000 155,000 580,000 700,000 1,700,000 Total assets. . Accounts Long-term debt.... Common stock Retained earnings 12/31/18 $ 3,185,000 $ (193,000) (3,094,000) (5,150,000) $ (400,000) (800,000) (1,000,000) payable 4,363 85 $(12,800,000) $ (3,185,000)