Problem

Parker, Inc.. acquires 70 percent of Sawyer Company for $420,000. The remaining.30 percent...

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 assess

$ 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 five-year 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?

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