Question

On January 1, 2017, Procise Corporation acquired 100 percent of the outstanding voting stock of GaugeRite Corporation for $2,040,050 cash. On the acquisition date, GaugeRite had the following balance sheet:

Cash	$	96,000		Accounts payable	$	216,000
Accounts receivable		166,000		Long-term debt		950,000
Land		742,000		Common stock		1,006,000
Equipment (net)		1,911,000		Retained earnings		743,000
	$	2,915,000			$	2,915,000

At the acquisition date, the following allocation was prepared:

Fair value of consideration transferred				$	2,040,050
Book value acquired					1,749,000
Excess fair value over book value					291,050
To in-process research and development	$	44,250
To equipment (8-year remaining life)		112,800			157,050
To goodwill (indefinite life)				$	134,000

Although at acquisition date Procise had expected $44,250 in future benefits from GaugeRite’s in-process research and development project, by the end of 2017, it was apparent that the research project was a failure with no future economic benefits.

On December 31, 2018, Procise and GaugeRite submitted the following trial balances for consolidation. There were no intra-entity payables on that date.

	Procise				GaugeRite
Sales	$	(3,886,850	)		$	(1,195,500	)
Cost of goods sold		1,762,500				780,000
Depreciation expense		331,000				141,000
Other operating expenses		220,750				35,500
Subsidiary income		(224,900	)			0
Net income	$	(1,797,500	)		$	(239,000	)
Retained earnings 1/1/18	$	(3,047,500	)		$	(913,000	)
Net income		(1,797,500	)			(239,000	)
Dividends declared		100,000				25,150
Retained earnings 12/31/18	$	(4,745,000	)		$	(1,126,850	)
Cash	$	170,050			$	\97,850	\
Accounts receivable		903,000				217,000
Inventory		967,000				504,000
Investment in GaugeRite		2,351,450				0
Land		3,617,500				779,000
Equipment (net)		5,117,500				1,865,000
Goodwill		315,000				0
Total assets	$	13,441,500			$	3,462,850
Accounts payable	$	(274,000	)		$	(433,000	)
Long-term debt	$	(3,272,500	)		$	(897,000	)
Common stock		(5,150,000	)			(1,006,000	)
Retained earnings 12/31/18		(4,745,000	)			(1,126,850	)
Total liabilities and equity	$	(13,441,500	)		$	(3,462,850	)

1. Show how Procise derived its December 31, 2018, Investment in GaugeRite account balance.

consideration transferred 1/1/2017
investment balance 12/31/18

Answer 1

	Show how Procise derived its December 31, 2018, Investment in GaugeRite account balance.
	Consideration Transferred		$2,040,050
	Increase in Gaugerite retained earnings		$170,000
	(913000-743000)
	In Process R & D w/O off		($44,250)
	in 2017
	Equipment Depreciation		($14,100)
	112800/8
	Income 2018		$239,000
	Dividend Declared 2018		($25,150)
	Amortization -2018		($14,100)
	Investment Balance 12/31/18		$2,351,450
	Consolidation Worksheet				Consolidation Entries
	particulars	Procise	Gaugerite		Dr		Cr	Consolidated
	Sales	($3,886,850)	($1,195,500)					($5,082,350)
	COGS	$1,762,500	$780,000					$2,542,500
	Depreciation Expenses	$331,000	$141,000	E	$14,100			$486,100
	Other operating Exp	$220,750	$35,500					$256,250
	Subsidiary Income	($224,900)	$0	I	$224,900			$0
	Net Income	($1,797,500)	($239,000)					($2,036,500)
	Retained Earnings-1/1	($3,047,500)	($913,000)	S	$913,000			($3,047,500)
	Net Income	($1,797,500)	($239,000)					($1,797,500)
	Dividends Declared	$100,000	$25,150			D	$25,150	$100,000
	Retained Earnings-12/31	($4,745,000)	($1,126,850)					($4,745,000)
	Cash	$170,050	$97,850					$267,900
	A/R	$903,000	$217,000					$1,120,000
	Inventory	$967,000	$504,000					$1,471,000
	Investment in gaugeritte	$2,351,450		D	$25,150	S	$2,143,900
						A	$232,700
						I	$229,400	$0
	Land	$3,617,500	$779,000					$4,396,500
	Equipment -Net	$5,117,500	$1,865,000	A	$98,700	E	$14,100	$7,067,100
	Goodwill	$315,000	$0	A	$134,000			$449,000
	Total Assets	$13,441,500	$3,462,850					$14,771,500
	Accounts Payable	($274,000)	($433,000)					($707,000)
	Long term debt	($3,272,500)	($897,000)					($4,169,500)
	Common Stock	($5,150,000)	($1,006,000)	S	$1,006,000			($5,150,000)
	Retained Earnings	($4,745,000)	($1,126,850)					($4,745,000)
	Total Liabilities & Equities	($13,441,500)	($3,462,850)					($14,771,500)