On January 1, 2017, Pluto Company acquired all of Saturn Company's common stock for $1,000,000 cash. On that date, Saturn had retained earnings of $200,000 and common stock of $600,000. The book values of Saturn's assets and liabilities were equal to fair values except for the following:
_________________________Book Value Fair Value
Equipment (net)....................$200,000...............$220,000
Land..................................250,000.................300,000
Additional Information:
1. The equipment had an estimated remaining useful life of five years at acquisition.
2. Goodwill was not impaired at December 31, 2017, but was impaired by $25,000 at December 31, 2018.
3. Reported income for Pluto (excluding equity income from Saturn's earnings) and Saturn Follows
______________________Pluto Saturn
Year 2017..................$500,000...........$200,000
Year 2018..................$350,000...........$100,000
Required:
1. Prepare the January 1, 2017, journal entry on Pluto's books to record the acquisition of Saturn.
2. Prepare the elimination entries needed to prepare a consolidated balance sheet immediately after acquisition.
3. Calculate consolidated income for 2017 and 2018.