On January 2, 2018, LVMH, Inc. acquired Tiffany as a wholly-owned subsidiary, paying $1,341,500. The purchase price was $800,000 in excess of the book value of Tiffany’s net assets. Part of the excess was attributable to a building with a 7-year life undervalued by $350,000. The rest was goodwill. On the acquisition date, Tiffany’s reported retained earnings equal to $385,000. LVMH uses the cost method of pre- consolidation Equity investment bookkeeping. The 2020 financial statements for the two companies are presented below. LVMH, Inc. $1,875,000 -658,000 1,217,000 -325,000 25,000 $917,000
Retained Earnings, 1/1/20
Net income
Dividends -75,000 Retained Earnings, 12/31/20 $3,158,500
Cash and receivables $492,840 Inventory 785,000
Tiffany $781,000 -451,000 330,000 -129,000 0 $201,000
$475,500 201,000 -25,000 $651,500
$540,200 513,600
346,500 $1,400,300
$157,800 365,000 69,500 70,000 86,500 651,500 $1,400,300
Sales revenue
Cost of goods sold Gross profit Operating expenses Dividend income Net Income
$2,316,500 917,000
Equity investment
Property, plant & equipment (Net)
Total Assets
Accounts payable
Accrued liabilities
Notes payable
Common stock
Additional paid-in capital Retained Earnings, 12/31/20 Total Liabilities and Equities
1,341,500
3,852,000 $6,471,340
$408,000 498,340 478,500 350,000
1,578,000
3,158,500 $6,471,340

A. At what amount will the following accounts appear on the consolidated financial statements for 2020?
a. Dividend Income
b. Operating Expenses
c. Equity Investment
d. Property, Plant and Equipment (net of accumulated depreciation) e. Goodwill
f. Retained Earnings
B. Assume LVMH also offers Tiffany employees an extra $5,000,000 if they achieve certain profit goals in the first three years after the merger. The fair value of this consideration is $750,000, and the expected payout is $2,500,000. Does this additional consideration affect the purchase price or consolidated amounts? If so, how?