On October 1, 2014, Pacer Corp. acquired all of Sunny Corp.’s outstanding stock for cash. The fair value of Sunny’s net assets was less than the purchase price but more than the net carrying amount. During October 2014, Pacer sold goods to Sunny at a profit. At December 31, 2014, 40% of these goods remained in Sunny’s inventory.
1. Specify reasons for preparing consolidated financial statements that present operating results, cash flows, and financial position as if a parent company and its subsidiaries were a single entity.
2. How will the acquisition affect Pacer’s consolidated balance sheet at October 1, 2014?
3. What eliminations are required for the intra-entity sales when preparing consolidated financial statements at December 31, 2014?
4. What is the effect on Pacer’s separate balance sheet immediately after the October 1, 2014, acquisition?