Year Peak Entertainment acquires its l00-percent-owned subsidiary Saddlestone Inc. on January 1, 2013. In preparing to consolidate Peak and Saddlestone at December 31, 2013, you assemble the following information:
Value of stock given up to acquire Saddlestone: $10,000,000.
Direct merger costs: $250,000.
Saddlestone's stockholders' equity at acquisition: $7,200,000.
Fair value of earnings contingency agreement to be paid in cash: $300,000.
Fair value of previously unrecorded identifiable intangibles (5-year life): $2,000,000
Goodwill and identifiable intangibles are not impaired in 2013.
Saddlestone's net income in 2013: $3,000,000.
Saddlestone's dividends paid in 2013: $1,000,000.
Required
a. Prepare the 2013 journal entries made by Peak to record the acquisition and calculate and record the equity method income accrual, using the complete equity method.
b. Prepare the consolidation eliminating entries made at December 31,2013.