On January 1, 2008, Pluto Company purchased all of Saturn Company’s common stock for \($1,000,000\) cash. On that date, Saturn had retained earnings of \($200,000\) and common stock of \($600,000\). The book values of Saturn’s assets and liabilities were equal to fair values except for the following:

Additional Information:
1. The equipment had an estimated remaining useful life of five years at acquisition.
2. Goodwill was not impaired in 2008 but was impaired by \($25,000\) in 2009.
3. Reported income for Pluto (excluding equity income from Saturn’s earnings) and Saturn follows:

Required:
1. Prepare the January 1, 2008 journal entry on Pluto’s books to record the acquisition of Saturn.
2. Prepare the elimination entries needed to prepare a consolidated balance sheet immediately after acquisition.
3. Calculate consolidated income for 2008 and 2009.
4. How would your answers to requirement 3 change under pre-SFAS No. 142 amortization rules for goodwill? (Assume a 40-year amortization period.)

Transcribed Image Text:

Equipment (net) Land Book Value $200,000 250,000 Fair Value $220,000 300,000