Problem $3-26($Algo$)($LO $3-1,3-3$a$)$

On January $3,2022,$ Persoff Corporation acquired all of the outstanding voting stock of Sea Cliff, Incorporated, in exchange for $$8,771,000$ in cash. Persoff elected to exercise control over Sea Cliff as a wholly owned subsidiary with an independent accounting system. Both companies have December $31$ fiscal year$-$ends. At the acquisition date, Sea Cliff$$s stockholders$$ equity was $$2,593,500$ including retained earnings of $$1,793,500.$

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 Book Value Fair Value Remaining Useful Life

Patented technology $ $182,500$ $ $2,877,5007$ years

Computer software $ $85,500$ $ $3,325,50012$ years

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:

Year Net Income Dividends

$2022$ $ $901,700$ $ $150,000$

$2023941,700150,000$

$2024976,700150,000$

December $31,2024,$ financial statements for each company follow. Parentheses indicate credit balances. Dividends declared were paid in the same period.

Items Persoff Sea Cliff

Income Statement

Revenues $ $(2,890,000)$ $ $(2,335,000)$

Cost of goods sold $1,433,300902,300$

Depreciation expense $317,500414,000$

Amortization expense $421,00042,000$

Equity earnings in Sea Cliff $(321,700)0$

Net income $ $(1,039,900)$ $ $(976,700)$

Statement of Retained Earnings

Retained earnings $1/1$ $ $(7,555,000)$ $ $(3,336,900)$

Net income $($above$)(1,039,900)(976,700)$

Dividends declared $600,000150,000$

Retained earnings $12/31$ $ $(7,994,900)$ $ $(4,163,600)$

Balance Sheet

Current assets $ $566,500$ $ $417,500$

Investment in Sea Cliff $9,176,1000$

Computer software $385,00070,500$

Patented technology $902,000114,000$

Goodwill $134,0000$

Equipment $1,894,5004,670,000$

Total assets $ $13,058,100$ $ $5,272,000$

Liabilities $ $(3,063,200)$ $ $(308,400)$

Common stock $(2,000,000)(800,000)$

Retained earnings $12/31(7,994,900)(4,163,600)$

Total liabilities and equity $ $(13,058,100)$ $ $(5,272,000)$

Required:

Determine the fair value in excess of book value for Persoff's acquisition date investment in Sea Cliff.

Determine Persoff's Equity earnings in Sea Cliff's balance for the year ended December $31,2024.$

Determine Persoff's December $31,2024,$ Investment in Sea Cliff's balance.