Pepper Corporation completed the acquisition of Sage Company for $4,000,000 and one million shares of its $10 par value stock that was trading for $30 per share. Next year, Pepper will pay an additional $2,000,000 if certain profitability targets are met. The present value of the expected payment is $1,000,000. Pepper incurred accountant and attorney fees associated with the acquisition of $1,800,000, and also paid $800,000 to register and issue the new shares used in the acquisition. The companies' balance sheets at the acquisition date are included below: In doing the due diligence during the acquisition process, you have found the following: 1. Accounts and notes receivable have a discounted present value of $2,600,000. 2. Current replacement value of inventory is $6,000,000. 3. The equipment has been appraised at $19,500,000. 4. Sage currently leases its facilities under an operating lease (assume this happened prior to new lease standard). Ten years remain on the lease and Sage pays below market rent, giving the lease a fair value of $1,250,000. 5. Sage has several long-term service contracts with profitable customers. The present value of the expected profits over the remaining term of the contracts is $2,000,000. 2. Current replacement value of inventory is $6,000,000. 3. The equipment has been appraised at $19,500,000. 4. Sage currently leases its facilities under an operating lease (assume this happened prior to new lease standard). Ten years remain on the lease and Sage pays below market rent, giving the lease a fair value of $1,250,000. 5. Sage has several long-term service contracts with profitable customers. The present value of the expected profits over the remaining term of the contracts is $2,000,000. 6. Sage has a stable and skilled workforce estimated to be worth $750,000. 7. Sage's trade name is estimated to be worth $200,000 as it is well-known in the industry. 8. The interest rate on Sage's bonds is lower than the prevailing rate, so the fair value of the bonds is 8,000,000. Required: 1. Compute goodwill for this acquisition. 2. Assume that this acquisition was a net asset acquisition. Prepare the entry (entries) needed to record the acquisition transactions. Prepare the balance sheet at the acquisition date by posting the entries. 3. Assume that Pepper acquired all of the stock of Sage Company. Prepare the entry (entries) needed to record the acquisition transactions. Prepare the necessary consolidation entries. Prepare the balance sheet at the acquisition date by posting the entries