Peak Entertainment acquires 60 percent of its subsidiary Saddlestone Inc. on January 1,2013. In preparing to consolidate Peak and Saddlestone at December 31,2013, we 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.
• Fair value of the 40 percent noncontrolling interest at acquisition: $6,500,000.
• Saddlestone's net income in 2013: $3,000,000.
• Saddlestone's dividends paid in 2013: $1,000,000.
• Peak uses the complete equity method to report the investment on its own books.
Required
a. Calculate total goodwill and its allocation to the controlling and noncontrolling interests.
b. Calculate equity in net income for 2013, as reported on Peak's books, and the noncontrolling interest in net income, as reported on the consolidated income statement for 2013.
c. Prepare the consolidation eliminating entries made at December 31, 2013.