Fundamentals of Advanced Accounting 5th Edition by Joe Ben Hoyle,Thomas Schaefer,Timothy Doupnik

Exercise 8

On January 1, 2012, Allan Company bought a 15 percent interest in Sysinger Company. The acquisition price of $184,500 reflected an assessment that all of Sysinger's accounts were fairly valued within the company's accounting records. During 2012, Sysinger reported net income of $100,000 and paid cash dividends of $30,000. Allan possessed the ability to influence significantly Sysinger's operations and, therefore, accounted for this investment using the equity method.
On January 1, 2013, Allan acquired an additional 80 percent interest in Sysinger and provided the following fair-value assessments of Sysinger's ownership components:

Also, as of January 1, 2013, Allan assessed a $400,000 value to an unrecorded customer contract recently negotiated by Sysinger. The customer contract is anticipated to have a remaining life of 4 years. Sysinger's other assets and liabilities were judged to have fair values equal to their book values. Allan elects to continue applying the equity method to this investment for internal reporting purposes.
At December 31, 2013, the following financial information is available for consolidation:

a. How should Allan allocate Sysinger's total acquisition-date fair value (January 1, 2013) to the assets acquired and liabilities assumed for consolidation purposes
b. Show how the following amounts on Allan's preconsolidation 2013 statements were derived:
• Equity in earnings of Sysinger.
• Gain on revaluation of Investment in Sysinger to fair value.
• Investment in Sysinger.
c. Prepare a worksheet to consolidate the financial statements of these two companies as of December 31, 2013.