On January 1, 2010, Pierson Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock

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On January 1, 2010, Pierson Corporation exchanged $1,710,000 cash for 90 percent of the outstanding voting stock of Steele Company. The consideration transferred by Pierson provided a reasonable basis for assessing the total January 1, 2010, fair value of Steele Company. At the acquisition date, Steele reported the following owner€™s equity amounts in its balance sheet:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,000

In determining its acquisition offer, Pierson noted that the values for Steele€™s recorded assets and liabilities approximated their fair values. Pierson also observed that Steele had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on Steele€™s books. Pierson expected both cost and revenue synergies from the combination.
At the acquisition date, Pierson prepared the following fair-value allocation schedule:
Fair value of Steele Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,900,000
Book value of Steele Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 725,000
Excess fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,175,000
to customer base (10-year remaining life) . . . . . . . . . . . . . . . . . . . . . . . 800,000
to goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 375,000

At December 31, 2011, the two companies report the following balances:

On January 1, 2010, Pierson Corporation exchanged $1,710,000 cash for


a. Using the acquisition method, determine the consolidated balances for this business combination as of December 31, 2011.
b. If instead the noncontrolling interest€™s acquisition-date fair value is assessed at $152,500, what changes would be evident in the consolidatedstatements?

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Advanced Accounting

ISBN: 978-0077431808

10th edition

Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik

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