Question: On January 1, 2014, 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 $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, 2014, but was impaired by $25,000 at December 31, 2015.
3. Reported income for Pluto (excluding equity income from Saturn's earnings) and Saturn follows:
Pluto Saturn
Year 2014 $500,000 $200,000
Year 2015 $350,000 $100,000
Required: 1. Prepare the January 1, 2014, 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 2014 and 2015.