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:

	Book value	Fair value
Land	$1,000,000	$300,000
Other plant assets, net	6,000,000	4,000,000
Identifiable intangible assets	--	3,000,000

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 Peregrines acquisition entry.

Enter answers in thousands ($20,000,000 equals $20,000 in thousands).

Description		Debit	Credit
Investment in Sparrow		Answer	Answer
Answer		Answer	Answer
Cash		Answer	Answer
Answer		Answer	Answer

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	Answer	Answer
	Answer	Answer	Answer
	Answer	Answer	Answer
	Treasury stock	Answer	Answer
	Investment in Sparrow	Answer	Answer
	Noncontrolling interest in Sparrow	Answer	Answer
	Identifiable intangible assets	Answer	Answer
(R)	Answer	Answer	Answer
	Answer	Answer	Answer
	Land	Answer	Answer
	Investment in Sparrow	Answer	Answer