Allen Company acquired 100 percent of Bradford Company's voting stock on January 1, 2014, by issuing 10,000 shares of its $10 par value common stock (having a fair value of $21.5 per share). As of that date, Bradford had stockholders' equity totaling $168,850. Land shown on Bradford's accounting records was undervalued by $15,500. Equipment (with a five-year remaining life) was undervalued by $8,650. A secret formula developed by Bradford was appraised at $22,000 with an estimated life of 20 years.
Following are the separate financial statements for the two companies for the year ending December 31, 2018. There were no intra-entity payables on that date. Credit balances are indicated by parentheses.
| |
Allen
Company |
|
Bradford
Company |
| Revenues |
$ |
(518,000 |
) |
|
$ |
(192,500 |
) |
| Cost of goods sold |
|
171,000 |
|
|
|
71,000 |
|
| Depreciation expense |
|
144,000 |
|
|
|
60,000 |
|
| Subsidiary earnings |
|
(58,670 |
) |
|
|
0 |
|
| Net income |
$ |
(261,670 |
) |
|
$ |
(61,500 |
) |
| Retained earnings, 1/1/18 |
$ |
(836,000 |
) |
|
$ |
(99,600 |
) |
| Net income (above) |
|
(261,670 |
) |
|
|
(61,500 |
) |
| Dividends declared |
|
175,500 |
|
|
|
40,000 |
|
| Retained earnings ,12/31/18 |
$ |
(922,170 |
) |
|
$ |
(121,100 |
) |
| Current assets |
$ |
418,000 |
|
|
$ |
123,500 |
|
| Investment in Bradford |
|
218,100 |
|
|
|
0 |
|
| Company |
|
|
|
|
|
|
|
| Land |
|
524,000 |
|
|
|
60,000 |
|
| Buildings and equipment (net) |
|
742,000 |
|
|
|
231,000 |
|
| Total assets |
$ |
1,902,100 |
|
|
$ |
414,500 |
|
| Current liabilities |
$ |
(289,930 |
) |
|
$ |
(228,400 |
) |
| Common stock |
|
(600,000 |
) |
|
|
(60,000 |
) |
| Additional paid-in capital |
|
(90,000 |
) |
|
|
(5,000 |
) |
| Retained earnings, 12/31/18 |
|
(922,170 |
) |
|
|
(121,100 |
) |
| Total liabilities and equity |
$ |
(1,902,100 |
) |
|
$ |
(414,500 |
) |
- Complete the table to show the allocation of the fair value in excess of book value.
- What balance will Allen show in its Subsidiary Earnings account?
- Complete the worksheet by consolidating the financial information for these two companies.