On January 2,2013, Perkins Company acquired all of Sanders Corporation's stock for $4,000,000 cash, when the book value of Sanders' stockholders' equity was $2,200,000. Sanders reported $500,000 of net income and paid dividends of $150,000 in 2013. Data related to the acquisition at January 2, 2013, appear below
Out-of-pocket merger costs paid in cash by Perkins$ 50,000
Excess of fair value of Sanders' inventory over book value80,000
Excess of fair value of Sanders' equipment over book value
(10-year life, straight-line)................................................................................ 200,000
Fair value of Sanders' previously unrecorded lawsuit liability70,000
Fair value of Sanders' previously unrecorded in-process research and development ............................................................................................300,000
Acquisition-related restructuring costs paid in cash by Perkins100,000
Sanders' cost of goods sold for 2013 includes 60 percent of the undervalued inventory. The fair value of the previously unrecorded lawsuit liability increased to $85,000 by December 31, 2013, within the measurement period. Impairment tests of in-process R&D and goodwill showed no decline in value during 2013.
Required
a. Prepare a schedule to compute Perkins' equity method income accrual for 2013 using the complete equity method, and prepare all entries related to the investment made by Perkins during 2013.
b. Prepare the eliminating entries made in consolidation at December 31,2013.