The balance sheets of Sail and Ivan Companies as of December 31, 2010, appear on the next page.

Assume that Sail Company purchased 100 percent of Ivan’s common stock for $700,000 immediately prior to December 31, 2010. Also assume that $50,000 of the excess of cost over book value is attributable to the increased value of Ivan Company’s property, plant, and equipment. Sail considers the rest of the excess to be goodwill.

Required

1. Prepare a work sheet for preparing a consolidated balance sheet as of the acquisition date.

2. If you were reading Sail’s consolidated balance sheet, what account would indicate that Sail paid more than fair value for Ivan and where would you find it on the balance sheet? Also, would you expect the amount of this account to change from year-to-year? What would cause it to change?

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Sail Ivan Company Company Assets $ 200,000 $ 60,000 Cash Accounts receivable 275,000 700,000 685,000 600,000 Investment in Ivan Company Property, plant, and equipment (net) 450,000 $1,860,000 $1,110,000 Total assets Liabilities and Stockholders' Equity $ 475,000 $ 535,000 Accounts payable Common stock, $20 par value Retained earnings Total liabilities and stockholders' equity 925,000 500,000 460,000 75,000 $1,860,000 $1,110,000