Acquisition date effects
On January 1, 2011, Pai, a U.S. firm, purchases all the outstanding capital stock of Sta, a British firm, for $990,000, when the exchange rate for British pounds is $1.65. The book values of Sta’s assets and liabilities are equal to fair values on this date, except for land that has a fair value of £200,000 and equipment with a fair value of £100,000. Summarized balance sheet information for Pai in U.S. dollars and for Sta in pounds just before the business combination is as follows:
|
Pai |
Sta |
|
|
Current assets |
$3,000,000 |
£100,000 |
|
Land |
800,000 |
100,000 |
|
Buildings—net |
1,200,000 |
250,000 |
|
Equipment—net |
1,000,000 |
50,000 |
|
$6,000,000 |
£500,000 |
|
|
Current liabilities |
$ 600,000 |
£ 50,000 |
|
Notes payable |
1,000,000 |
150,000 |
|
Capital stock |
3,000,000 |
200,000 |
|
Retained earnings |
1,400,000 |
100,000 |
|
$6,000,000 |
£500,000 |
REQUIRED: Prepare a consolidated balance sheet for Pai and Subsidiary at January 1, 2011, immediately after the business combination.