On January 1, 2021, Waddington Company acquired Middleton Co. by issuing 55,000 shares of its common Stock with a market value of $20 per share. A building on sub’s books was undervalued by $100,000, resulting in annual amortization of $10,000. Also, there was an unrecorded customer list valued at $150,000, resulting in annual amortization of $15,000; as well as a 10-year franchise agreement valued at $125,000. The separate 2021 financial statements for Waddington and Middleton follow.
Waddington Middleton
Sales revenue $3,600,000 $ 975,000
Cost of goods sold (2,520,000) (585,000)
Gross profit 1,080,000 390,000
Operating expenses (684,000) (253,500)
Equity income 99,000 _
Net Income $ 495,000 $ 136,500
Retained Earnings, 1/1/21 $1,830,500 $ 503,750
Net income 495,000 136,500
Dividend (32,040) (20,475)
Retained Earnings, 12/31/21 $2,293,460 $ 619,775
Cash and receivables $ 772,275 $ 477,425
Inventory 698,400 290,550
Equity investment 1,178,525
Property, plant & equipment (Net) 3,719,520 537,550
Total Assets $6,368,720 $1,305,525
Accounts payable $ 263,520 $ 92,950
Accrued liabilities 313,200 121,550
Notes payable 1,250,000 325,000
Common stock 407,000 65,000
Additional paid-in capital 1,824,040 81,250
Retained Earnings, 12/31/11 2,293,400 619,775
Total Liabilities and Equities $6,368,720 $1,305,525
Required:
a. Prepare FV allocation schedule
b. Prepare all necessary consolidation entries for 2021 consolidated financial statements.