Pecos Company acquired 100 percent of Suaro's outstanding stock for $1,450,000 cash on 1/1/2014, when Suaro had
Question:
Pecos Company acquired 100 percent of Suaro's outstanding stock for $1,450,000 cash on 1/1/2014, when Suaro had the following balance sheet:
Cash - $37,000 Liabilities - ($422,000)
Receivables - $82,000 Common Stock - ($350,000)
Inventory - $149,000 Retained Earnings - ($126,000)
land - $90,000 Total Liabilities and Equity - ($898,000)
Equipment (net) - $225,000
Software - $315,000
Total Assets - $898,000
At the acquisition date, the fair values of each identifiable asset and liability that differed from book value are:
Land - $80,000
Brand Name - $60,000 - indefinite life - unrecognized on Suaro's books
Software - $415,000 - 2 yr estimated useful life
In-Process R&D - $300,000
Additional Info:
1) Although at the acquisition date Pecos expected future benefits from Suaro's in-process R&D, by the end of 2014, it became clear it was a failure with no future economic benefits.
2) During 2014, Suaro earns $75,000 and pays no dividends
3) Selected amounts form Pecos and Suaro's separate financial statements at Dec 31, 2015, are presented in the consolidated information worksheet. All consolidated worksheets are to be prepared as of Dec 31, 2015
4) Pecos Jan 1, 2015, Retained Earnings balance - before any effect from Suaro's 2014 income - is ($930,000) (credit balance)
5) Pecos has 500,000 common shares outstanding EPS calculations and reported $2,943,100 for consolidated assets at the beginning of the period.
The following is the consolidated information worksheet:
| A | B | C | D |
| Dec 31, 2015, Trial Balances | |||
| Pecos | Suaro | ||
| Revenues | ($1,052,000) | ($427,000) | |
| Operating Expenses | $821,000 | $262,000 | |
| Goodwill Impairment Loss | ? | ||
| Income from Suaro | ? | ||
| Net Income | ? | ($165,000) | |
| Retained Earnings - Pecos 1/1/15 | ? | ||
| Retained Earnings - Suaros 1/1/15 | ($201,000) | ||
| Net Income (Above) | ? | ($165,000) | |
| Dividends Declared | $200,000 | $35,000 | |
| Retained Earnings 12/31/15 | ? | ($331,000) | |
| Cash | $195,000 | $95,000 | |
| Receivables | $247,000 | $143,000 | |
| Inventory | $415,000 | $197,000 | |
| Investment in Suaro | ? | ||
| land | $341,000 | $85,000 | |
| equipment | $240,100 | $100,000 | |
| Software | $312,000 | ||
| Other Intangibles | $145,000 | ||
| Goodwill | |||
| Total Assets | ? | $932,000 | |
| Liabilities | ($1,537,100) | ($251,000) | |
| Common stock | ($500,000) | ($350,000) | |
| Retained Earnings (Above) | ? | ($331,000) | |
| Total Liabilities and Equity | ? | ($932,000) | |
| Fair-Value allocation schedule | |||
| Price paid | $1,450,000 | ||
| Book value | $476,00 | ||
| Excess initial value | $974,000 | Amortizations | |
| to land | ($10,000) | 2014 | 2015 |
| to brand name | $60,000 | ? | ? |
| to software | $100,000 | ? | ? |
| to IPR&D | $300,000 | ? | ? |
| to goodwill | $524,000 | ? | ? |
| Suaro's RE changes | Income | Dividends | |
| 2014 | $75,000 | $0 | |
| 2015 | $165,000 | $35,000 |
A) Input the consolidated information worksheet provided and complete the fair-value allocation schedule by computing the excess amortizations for 2014 and 2015.
B) Using seperate worksheets, prepare Peco's trial balances for each of the indicated accounting methods (equity, initial value, and partial equity). Use only the formulas for the Investment in Suaro, the Income of Suaro, and Retained Earnings accounts.
Expert Answer:
Consolidated Information Worksheet Fair Value Allocation Schedule 1450000 476000 ... View the full answer
