Question - Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percent of Sawyer's outstanding shares continue to trade at a collective value of $174,000. On the acquisition date, Sawyer has the following accounts:
Book Value Fair Value
Current assets $ 210,000 $ 210,000
Land 170,000 180,000
Buildings 300,000 330,000
Liabilities (280,000 ) (280,000 )
The buildings have a 10-year life. In addition, Sawyer holds a patent worth $140,000 that has a five year life but is not recorded on its financial records. At the end of the year, the two companies report the following balances:
Parker Sawyer
Revenues $ (900,000 ) $ (600,000 )
Expenses 600,000 400,000
Required:
(a) Assume that the acquisition took place on January 1. Determine the controlling interest that would appear in a consolidated income statement for this year.
(b) Assume that the acquisition took place on April 1. Sawyer's revenues and expenses occurred uniformly through out the year. Determine the controlling interest that would appear in a consolidated income statement for this year.