Goodwill and Consolidations This alters problem 11-44 However, this problem is self-contained because all the facts are repro- duced as follows. Company P acquired a 100% voting interest in Company S for $150 million cash at the start of the year. Immediately before the business combination, each company had the following condensed balance sheet accounts ($ in millions): P S Cash and other assets $500 160 Accounts payable, etc. $200 $ 40 Stockholders' equity 300 120 Total liab. & stk. equity $500 $160 Assume the fair values of the individual assets and liabilities of S were equal to their book values. 1. Prepare a tabulation of the consolidated balance sheet accounts immediately after the acquisition. Use the balance sheet equation format. 2. Suppose the book values of the S individual assets are equal to their fair market values except for equipment. The net book value of equipment is $40 million and its fair market value is $50 million. The equipment has a remaining useful life of 5 years. Straight-line depreciation is used.

a. Describe how the consolidated balance sheet accounts immediately after the acquisition would differ from those in requirement 1. Be specific as to accounts and amounts.

b. By how much will consolidated income differ in comparison with the consolidated income that would be reported if all equipment had fair value equal to its book value on S's books as in requirement 1?