On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff,...

 

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On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $8,119,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,571,500 including retained earnings of $1,771,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These items had fair values that differed from their values on Sea Cliff's books as follows: Asset Patented technology Computer software 2019 2020 2021 Book Value Fair Value $ 172,500 $ 2,727,500 $ 79,500 $ 2,839,500 Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: Net Income $ 901,300 941,300 976,300 Remaining Useful Life 7 years 12 years Dividends $ 150,000 150,000 150,000 December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity Note: Parentheses indicate a credit balance. Persoff (2,850,000) 1,413,700 307,500 409,000 (381,300) $ (1,101,100) $ (7,535,000) (1,101,100) 600,000 $ (8,036,100) 548,500 8,702,900 365,000 878,000 126,000 1,880,500 $ 12,500,900 $ (2,464,800) (2,000,000) (8,036,100) $(12,500,900) Sea Cliff $(2,315,000) 894,700 406,000 38,000 0 $ (976,300) $ (3,314,100) (976,300) 150,000 $(4,140,400) $ 407,500 0 64,500 106,000 0 4,630,000 $ 5,208,000 $ (267,600) (800,000) (4,140,400) $(5,208,000) a. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff. b. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2021. c. Determine Persoff's December 31, 2021, Investment in Sea Cliff's balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.) Accounts Ind PERSOFF CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year December 31, 2021 Persoff Sea Cliff Consolidation Entries Credit Debit Consolidated Totals Show less A On January 3, 2019, Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Inc., in exchange for $8,119,000 in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December 31 fiscal year-ends. At the acquisition date, Sea Cliff's stockholders' equity was $2,571,500 including retained earnings of $1,771,500. Persoff pursued the acquisition, in part, to utilize Sea Cliff's technology and computer software. These items had fair values that differed from their values on Sea Cliff's books as follows: Asset Patented technology Computer software 2019 2020 2021 Book Value Fair Value $ 172,500 $ 2,727,500 $ 79,500 $ 2,839,500 Sea Cliff's remaining identifiable assets and liabilities had acquisition-date book values that closely approximated fair values. Since acquisition, no assets have been impaired. During the next three years, Sea Cliff reported the following income and dividends: Net Income $ 901,300 941,300 976,300 Remaining Useful Life 7 years 12 years Dividends $ 150,000 150,000 150,000 December 31, 2021, financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period. Income Statement Revenues Cost of goods sold Depreciation expense Amortization expense Equity earnings in Sea Cliff Net income Statement of Retained Earnings Retained earnings 1/1 Net income (above) Dividends declared Retained earnings 12/31 Balance Sheet Current assets Investment in Sea Cliff Computer software Patented technology Goodwill Equipment Total assets Liabilities Common stock Retained earnings 12/31 Total liabilities and equity Note: Parentheses indicate a credit balance. Persoff (2,850,000) 1,413,700 307,500 409,000 (381,300) $ (1,101,100) $ (7,535,000) (1,101,100) 600,000 $ (8,036,100) 548,500 8,702,900 365,000 878,000 126,000 1,880,500 $ 12,500,900 $ (2,464,800) (2,000,000) (8,036,100) $(12,500,900) Sea Cliff $(2,315,000) 894,700 406,000 38,000 0 $ (976,300) $ (3,314,100) (976,300) 150,000 $(4,140,400) $ 407,500 0 64,500 106,000 0 4,630,000 $ 5,208,000 $ (267,600) (800,000) (4,140,400) $(5,208,000) a. Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff. b. Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December 31, 2021. c. Determine Persoff's December 31, 2021, Investment in Sea Cliff's balance. d. Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Prepare a worksheet to determine the consolidated values to be reported on Persoff's financial statements. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Input all amounts as positive values.) Accounts Ind PERSOFF CORPORATION AND CONSOLIDATED SUBSIDIARY Consolidation Worksheet For Year December 31, 2021 Persoff Sea Cliff Consolidation Entries Credit Debit Consolidated Totals Show less A

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