Example 3: Business Combinations Achieved in Stages (Step Acquisition, in Chapter 2) On January 1, 202X, Pacer Corporation paid $125,000 cash for 15% of the outstanding common stock of Sarah Company. On December 31, 202X, Pacer paid $405,000 cash for 45% of the outstanding common stock of Sarah. The fair values of Pacer's 15% investment in Sarah and of the noncontrolling interest were $135,000 and $360,000 respectively on December 31, 202X Information for Sarah Company on December 31, 202X is as follows: Book value Fair value Cash Inventory 100,000 100,000 300,000 350,000 Land 430,000 400,000 Total 830,000 850,000 Accounts payable 50,000 50,000 Bonds payable 100,000 108,000 Common stock 200,000 Add. paid-in capital 100,000 Retained earnings 380,000 830,000 Total In a business combination achieved in stages, the acquirer has to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain/loss in earnings. Pacer's journal entries on December 31, 202X: 12/31/202X 12/31/202X