Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percent of Sawyer’s outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Sawyer has the following accounts:
|
Book Value |
Fair Value |
|
|
Current assets |
$210,000 |
$210,000 |
|
Land |
170,000 |
180,000 |
|
Buildings |
300,000 |
330,000 |
|
Liabilities |
280,000 |
280,000 |
The buildings have a 10 year life. In addition, Sawyer holds a patent worth $140,000 that has a fiveyear life but is not recorded on its financial records. At the end of the year, the two companies report the following balances:
|
Parker |
Sawyer |
|
|
Revenues |
($900,000) |
($600,000) |
|
Expenses |
600,000 |
400,000 |
a. Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year?
b. Assume that the acquisition took place on April 1. Sawyer’s revenues and expenses occurred uniformly throughout the year. What amounts would appear in a consolidated income statement for this year?