Question

Angela Corporation (a private company) acquired all of the outstanding voting stock of Eddy Tech, Inc. on January 1, 2018, in exchange for $9,090,000 in cash. At the acquisition date, Eddy Tech’s stockholders’ equity was $7,300,000 including retained earnings of $3,050,000.

At the acquisition date, Angela prepared the following fair value allocation schedule for its newly acquired subsidiary:

Consideration transferred				$	9,090,000
Eddy’s stockholder’s equity					7,300,000
Excess fair over book value				$	1,790,000
to patented technology (5-year remaining life)	$	179,500
to trade names (indefinite remaining life)		512,000
to equipment (8-year remaining life)		84,000			775,500
Goodwill				$	1,014,500

At the end of 2018, Angela and Eddy Tech report the following amounts from their individually maintained account balances, before consideration of their parent-subsidiary relationship. Parentheses indicate a credit balance.

	Angela				Eddy Tech
Sales	$	(7,942,500	)		$	(2,785,000	)
Cost of goods sold		3,998,250				1,492,500
Depreciation expense		520,000				61,600
Amortization expense		270,000				24,000
Other operating expenses		78,000				51,000
Net income	$	(3,076,250	)		$	(1,155,900	)

Required:

Prepare a 2018 consolidated income statement for Angela and its subsidiary Eddy Tech. Assume that Angela, as a private company, elects to amortize goodwill over a 10 year period.

(account title)	---	$XXX
(account title)	---	$XXX
(account title)	---	$XXX
(account title)	$XXX	---
(account title)	$XXX	---
(account title)	$XXX	---
(account title)

account title options: sales, COGS, depreciation epense, aoritzation expense, other operating expenses

Answer 1

Consolidated income statement
			For your Understanding
		Amount in $	Angela	Eddy Tech	Depreciation on equipment	Amortization of Patent	Amortizaion of goodwill
Sales		10727500	7942500	2785000
Cost of goods sold		5490750	3998250	1492500
Gross Margin		5236750
Less : Expenses
Depreciation expense	592100		520000	61600	10500
Amortization expense	431350		270000	24000		35900	101450
Other operating expense	129000		78000	51000
Net Income		4084300