Date of Acquisition Consolidation Eliminating Entries, Bargain Purchase

Peregrine Company acquired 80 percent of Sparrow Companys common stock for $20,000,000 in cash; fees paid to an outside firm to estimate the earning power of Sparrow and the fair values of its properties amounted to $2,500,000. Sparrows equity consisted of $3,000,000 in capital stock, $25,000,000 in retained earnings, $1,500,000 in accumulated other comprehensive loss, and $500,000 in treasury stock. Book values of Sparrows 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.

a. Calculate the gain on acquisition and prepare Peregrines acquisition entry.

Land Book value Fair value $1,000,000 $300,000 6,000,000 4,000,000 -- 3,000,000 Other plant assets, net Identifiable intangible assets Enter answers in thousands ($20,000,000 equals $20,000 in thousands). Credit Debit OX Description Investment in Sparrow Merger expenses Cash Gain on acquisition OX 0 0 0 O OX b. Prepare the working paper eliminating entries needed to consolidate Peregrine and Sparrow at the date of acquisition. Enter answers in thousands ($20,000,000 equals $20,000 in thousands). Ref. Description Debit Credit (E) Capital stock OX 0 Retained earnings OX O Accumulated other compret ov 0 x Treasury stock 0 0 x Investment in Sparrow O 0x Noncontrolling interest in Sparrow 0 OX Identifiable intangible assets (R) Noncontrolling interest in Sparr ~ ~ OX O Other plant assets, net Land o 0 x Investment in Sparrow 0 OX O O Ox