On January 3, 2013, Persoff Corporation acquired all of the outstanding voting stock of SeaCliff, Inc. in exchange for $6,000,000 in cash. Persoff elected to exercise control over Sea Cliffas a wholly owned subsidiary with an independent accounting system. Both companies haveDecember 31 fiscal year-ends. At the acquisition date, Sea Cliff’s stockholders’ equity was$2,500,000 including retained earnings of $1,700,000.Persoff pursued the acquisition, in part, to utilize Sea Cliff ’s technology and computersoftware. These items had fair values that differed from their values on Sea Cliff ’s books asfollows:Asset Book Value Fair ValueRemainingUseful LifePatented technology $140,000 $2,240,000 7 yearsComputer software $ 60,000 $1,260,000 12 yearsLO 3-1, 3-3aConsolidations—Subsequent to the Date of Acquisition 131Sea Cliff’s remaining identifiable assets and liabilities had acquisition-date book values thatclosely approximated fair values. Since acquisition, no assets have been impaired. During thenext three years, Sea Cliff reported the following income and dividends:Net Income Dividends2013 $900,000 $150,0002014 940,000 150,0002015 975,000 150,000December 31, 2015, financial statements for each company appear below. Parentheses indicatecredit balances. Dividends declared were paid in the same period.Income Statement Persoff Sea CliffRevenues $ (2,720,000) $(2,250,000)Cost of goods sold 1,350,000 870,000Depreciation 275,000 380,000Amortization 370,000 25,000Equity earnings in Sea Cliff (575,000 ) –0–Net income $ (1,300,000 ) $ (975,000 )Statement of Retained EarningsRetained earnings 1/1 $ (7,470,000) $(3,240,000)Net income (above) (1,300,000) (975,000)Dividends declared 600,000 150,000Retained earnings 12/31 $ (8,170,000) $(4,065,000)Balance SheetCurrent assets $ 490,000 $ 375,000Investment in Sea Cliff 7,165,000 –0–Computer software 300,000 45,000Patented technology 800,000 80,000Goodwill 100,000 –0–Equipment 1,835,000 4,500,000Total assets $ 10,690,000 $ 5,000,000Liabilities $ (520,000) $ (135,000)Common stock (2,000,000) (800,000)Retained earnings 12/31 (8,170,000 ) (4,065,000 )Total liabilities and equity $(10,690,000 ) $(5,000,000 )a. Construct Persoff’s acquisition-date fair-value allocation schedule for its investment in SeaCliff.b. Show how Persoff determined its Equity earnings in Sea Cliff balance for the year endedDecember 31, 2015.c. Show how Persoff determined its December 31, 2015, Investment in Sea Cliff balance.d. Prepare a worksheet to determine the consolidated values to be reported on Persoff’sfinancial statements.