Peregrine Company acquired 80 percent of Sparrow Company's common stock for \($22,000,000\) in cash; fees paid to an outside firm to estimate the earning power of Sparrow and the fair values of its properties amounted to \($3,000,000.\) Sparrow's equity consisted of \($4,000,000\) in capital stock, \($20,000,000\) in retained earnings, \($1,500,000\) in accumulated other comprehensive income, and \($500,000\) in treasury stock. Book values of Sparrow's identifiable assets and liabilities approximated their fair values except as noted below:

Assume that the fair values above have been carefully evaluated for accuracy. The fair value of the noncontrolling interest is estimated to be \($4,000,000\) at the date of acquisition.
Required

a. Calculate the gain on acquisition and prepare Peregrine’s acquisition entry.

b. Prepare the working paper eliminating entries needed to consolidate Peregrine and Sparrow at the date of acquisition.

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Land.... Other plant assets, net. Equity method investments Long-term debt...... Book value $1,000,000 6,000,000 Fair value $ 200,000 8,000,000 2,000,000 3,500,000 4,000,000 2 4,700,000