Question

Allen Company acquired 100 percent of Bradford Company’s voting stock on January 1, 2014, by issuing...

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 $17.5 per share). As of that date, Bradford had stockholders’ equity totaling $112,150. Land shown on Bradford’s accounting records was undervalued by $19,700. Equipment (with a five-year remaining life) was undervalued by $6,750. A secret formula developed by Bradford was appraised at $36,400 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

$

(521,000

)

$

(303,750

)

Cost of goods sold

172,000

115,500

Depreciation expense

189,000

54,000

Subsidiary earnings

(131,080

)

0

Net income

$

(291,080

)

$

(134,250

)

Retained earnings, 1/1/18

$

(762,000

)

$

(103,500

)

Net income (above)

(291,080

)

(134,250

)

Dividends declared

175,500

40,000

Retained earnings ,12/31/18

$

(877,580

)

$

(197,750

)

Current assets

$

374,000

$

101,500

Investment in Bradford

309,750

0

Company

Land

574,000

86,100

Buildings and equipment (net)

854,000

186,000

Total assets

$

2,111,750

$

373,600

Current liabilities

$

(544,170

)

$

(110,850

)

Common stock

(600,000

)

(60,000

)

Additional paid-in capital

(90,000

)

(5,000

)

Retained earnings, 12/31/18

(877,580

)

(197,750

)

Total liabilities and equity

$

(2,111,750

)

$

(373,600

)

a-1. Complete the table to show the allocation of the fair value in excess of book value.

a-2. What balance will Allen show in its Subsidiary Earnings account?

b. Complete the worksheet by consolidating the financial information for these two companies.

Business   Accounting   
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Homework Answers

Answer #1
Accounts Amount Life Annual excess amortizations
Land          19,700                -                   -  
Equipment            6,750 5 years          1,350
Formula      36,400.0 20 years          1,820
Total          62,850          3,170


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