On January 1, 2009, Peterson Corporation exchanged $ 1,090,000 fair-value consideration for all of the outstanding voting stock of Santiago, Inc. At the acquisition date, Santiago had a book value equal to $950,000. Santiago’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $240,000 with an estimated remaining life of six years. The Santiago acquisition was Peterson’s only business com¬ bination for the year.

In case expected synergies did not materialize, Peterson Corporation wished to prepare for a potential future spin-off of Santiago, Inc. Therefore, Peterson had Santiago maintain its separate incorporation and independent accounting information system as elements of continuing value.

On December 31, 2009 each company submitted the following financial statements for consolidation. LO1 Peterson Corp. Santiago, Inc.

Income Statement Revenues . (535,000) (495,000)

Cost of goods sold... 170,000 155,000 Gain on bargain purchase... (100,000) -0-

Income Statement (continued)
Depreciation and amortization . . . Equity earnings from Santiago . . .
Netincome.
Statement of Retained Earnings Retained earnings, 1/1.
Net income (above).
Dividends paid.
Retained earnings, 12/31 .
Balance Sheet Current assets.
Investment in Santiago.
Trademarks.
Patented technology.
Equipment.
Total assets.
Liabilities.
Commonstock.
Retained earnings, 12/31 .
Total liabilities and equity .
Peterson Corp. Santiago, Inc.
125,000 140,000 (160,000)
-0-
(500,000)
(200,000)
(1,500,000)
(650,000)
(500,000)
(200,000)
200,000 50,000 (1,800,000)
(800,000)
190,000 300,000 1,300,000 -0-
100,000 200,000 300,000 400,000 610,000 300,000 2,500,000 1,200,000 (165,000)
(100,000)
(535,000)
(300,000)
(1,800,000)
(800,000)
(2,500,000)
(1,200,000)

a. Show how Peterson determined the following account balances • Gain on bargain purchase • Equity earnings from Santiago • Investment in Santiago

b. Prepare a December 31, 2009, consolidated worksheet for Peterson and Santiago.