Pesto Corporation acquired 70 percent of Sauce Corporation’s common stock on January 1, 20X7, for $294,000 in cash. At the acquisition date, the book values and fair values of Sauce’s assets and liabilities were equal, and the fair value of the noncontrolling interest was equal to 30 percent of the total book value of Sauce. The stockholders’ equity accounts of the two companies at the date of purchase are as follows:

a. What amount will be assigned to the noncontrolling interest on January 1, 20X7, in the consolidated balance sheet?

b. Prepare the stockholders’ equity section of Pesto and Sauce’s consolidated balance sheet as of January 1, 20X7.

c. Pesto acquired ownership of Sauce to ensure a constant supply of electronic switches, which it purchases regularly from Sauce. Why might Pesto not feel compelled to purchase all of Sauce’s shares?

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Common Stock ($10 par value) Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Pesto Corporation $400,000 222,000 358,000 $980,000 Sauce Corporation $180,000 65,000 175,000 $420,000