Advanced Accounting: P4-30 On January 1, 2010, Pierson Corporation exchanged

Advanced Accounting
P4-30 Acquisition method consolidated balances
On January 1, 2010, Pierson Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of Steele Company. The consideration transferred by Pierson provided a reasonable basis for assessing the total January 1, 2010, fair value of Steele Company.
At the acquisition date Steele reported the following owner's equity amounts in its balance sheet:
Common stock 400,000
Additional paid-in capital 60,000
Retained earnings 265,000
In determining its acquisition offer, Pierson noted that the values for Steel's recorded assets and liabilities approximated their fair values. Pierson also observed that Steele had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on Steele's books. Pierson expected both cost and revenue synergies from the combination.
At the acquisition date, Pierson prepared the following fair-value allocation schedule:
Fair value of Steele Company 1,900,000
Book value of Steele Company 725,000
Excess fair value 1,175,000
to customer base (10-year remaining life) 800,000
to goodwill 375,000

At December 31, 2011, the two companies report the following balances:
Pierson Steele
Revenues (1,843,000) (675,000)
Cost of goods sold 1,100,000 322,000
Depreciation expense 125,000 120,000
Amortization expense 275,000 11,000
Interest expense 27,500 7,000
Equity in income of Steele (121,500)
Net income (437,000) (215,000)
Retained earnings, 1/1 (2,625,000) (395,000)
Net income 1,100,000 322,000
Dividends paid 350,000 25,000
Retained earnings, 12/31 (1,175,000) (48,000)
Current assets 1,204,000 430,000
Investment in Steele 1,854,000
Buildings and equipment 931,000 863,000
Copyrights 950,000 107,000
Accounts payable (485,000) (200,000)
Notes payable (542,000) (155,000)
Common stock (900,000) (400,000)
Additional paid-in capital (300,000) (60,000)
Retained earnings, 12/31 (1,843,000) (675,000)
Total liabilities and equities (335,000) (520,000)

a. Using the acquisition method, determine the consolidated balances for this business combination as of December 31, 2011.
b. If instead the noncontrolling interest's acquisition-date fair value is assessed at $152,500, what changes would be evident in the consolidated statements?
Powered by