Question: On January 1, 2009, Pierson Corporation exchanged $1,710,000 in cash for 90% of the outstanding voting common stock of Steele Company. The consideration transferred by Pierson provided a reasonable basis for assessing the total January 1, 2009 fair value of Steele Company. At the acquisition date, Steele reported the following owner's
equity amounts in the balance sheet.
Common Stock $400,000
Additional Paid in Capital $60,000
Retained Earnings $265,000
In determining the acquisition offer, Pierson noted that the values for Steele's recorded assets and liabilities approximated fair value with the exception of Property, Plant and Equipment. The differerence between the book value and fair value of the Property, Plant and Equipment account on the date of acquisition was $800,000.
Additional Facts:
Pierson has decided to use the complete equity method to account for its Investment in Steele.
The Property, Plant and Equipment Account will be shown net on the consolidated balance sheet and has a remaining useful life of 10 years.
Goodwill was tested for impairment in 2009 and 2010. The implied fair values of Goodwill for each year are given below:
2009 $325,000
2010 $380,000
Required:
Problem 1. Prepare a reconciliation of the "Investment in Steele" account beginning with the investment balance on the date of acquisition and ending with the 12/31/2010 balance of $1,809,000.
Problem 2. Prepare the elimination/adjusting entries that would be used in the preparation of the Consolidating worksheet as of and for the year ended 12/31/2010.
Problem 3. Complete the consolidating worksheet that is on the other tab of this excel worksheet.