Pico Corporation issued 200,000 shares of its ($ 10) par common stock on March 31, 20X0, to

Question:

Pico Corporation issued 200,000 shares of its $\$ 10$ par common stock on March 31, 20X0, to acquire all the outstanding $\$ 25$ par value common stock of Strata Inc. The business combination meets all conditions for a pooling of interests. On March 31, 20X0, the market price of Pico's common stock was $\$ 35$ a share. Both corporations continued to operate as separate businesses. maintaining separate accounting records with years ending December 31 .

On March 31, 20X0, immediately before the combination, the stockholders' equities were:

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1. During March 20X0, Pico paid $\$ 720,000$ for expenditures relating to the business combination with Strata.
2. Pico accounts for its investment in Strata using the equity method.
3. On March 31, 20X0, the fair values of Strata's assets and liabilities equaled their book values, except for its long-term investment in marketable equity securities, for which the aggregate market value exceeded aggregate cost by $\$ 600,000$.
4. On March $10,20 \mathrm{X} 0$, Strata paid a cash dividend totaling $\$ 250,000$ on its common stock.
5. On November 15, 20X0, Pico paid a cash dividend totaling $\$ 1,500,000$ on its common stock.
6. During August 20X0. Pico sold merchandise to Strata at a profit of $\$ 800,000$. On December 31, 20X0, one-fourth of this merchandise remained in Strata's inventory.
7. For the period April 1 through December 31, 20X0, Strata paid Pico management fees totaling $\$ 150,000$.
8. Strata's $20 \mathrm{X} 0$ net income was $\$ 1,450,000$. Pico's income was $\$ 2,240,000$, before considering equity in Strata's net income.
9. The balances in retained earnings at January 1, 20X0, were $\$ 6,820,000$ and $\$ 2,290,000$ for Pico and Strata, respectively.
\section*{Required}

a. Prepare Pico Corporation's journal entries to record the business combination with Strata Inc. and the expenditures relating to the business combination.

b. Prepare a schedule to compute the investment in Strata Inc. at equity, at December 31, 20X0.

c. Prepare a formal consolidated statement of changes in retained earnings of Pico Corporation and its subsidiary, Strata Inc., for the year ended December 31, 20X0.

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