Easton Company acquires 100 percent of the outstanding voting shares of Harris Company. To obtain these shares, Easton pays \(\$ 420,000\) in cash and issues 5,000 of its \(\$ 10\) par value common stock. On this date, Easton's stock has a fair value of \(\$ 72\) per share, and Harris's book value of stockholders' equity is \(\$ 560,000\). Easton is willing to pay \(\$ 780,000\) for a company with a book value for equity of \(\$ 560,000\) because it believes that (1) Harris's buildings are undervalued by \(\$ 80,000\), and (2) Harris has an unrecorded patent that Easton values at \(\$ 60,000\). Easton considers the remaining balance sheet items to be fairly valued (no book-to-market difference). The remaining \(\$ 80,000\) of the purchase price is ascribed to corporate synergies and other general unidentifiable intangible assets (goodwill). The balance sheets at the acquisition date follow:

a. Show the breakdown of the investment into the book value acquired, the excess of fair value over book value, and the portion of the investment representing goodwill.

b. Prepare the consolidating adjustments and the consolidated balance sheet on the date of acquisition.

c. How will the excess of the purchase price over book value acquired be treated in years subsequent to the acquisition?

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Cash. Receivables Inventory.. Investment in Harris Land.. Buildings, net. Equipment, net.. Total assets.... Accounts payable.. Long-term liabilities Common stock.. Additional paid-in capital Retained earnings.. Total liabilities & equity. Easton Company $ 168,000 320,000 440,000 780,000 200,000 800,000 240,000 $2,948,000 $ 320,000 760,000 1,000,000 148,000 720,000 $2,948,000 Harris Company $ 80,000 180,000 260,000 120,000 220,000 100,000 $960,000 $ 60,000 340,000 80,000 480,000 $960,000 Consolidating Adjustments Consolidated