Perez, Inc. a U.S.-based consumer products company paid $50 per share to acquire 1,500 of the 10,000 outstanding common voting shares of Sunny Day Company.

Sunny Day’s common stock is actively traded on a recognized national stock exchange. At fiscal year-end 20x1 and 20x2, their common stock traded for $48 to $55 per share, respectively. Sunny Day did not issue common shares during the period 1/1/20x1 through 12/31/20x2.

On the acquisition date, 1/1/20x1, Sunny Day’s balance sheet was as follows:

Sunday Day Company Balance Sheet 1/1/20x1
Assets		Liabilities and Equity
Current assets	$75,000	Liabilities	$80,000
Machinery and Equipment	250,000	Common Stock	135,000
Land	125,000	Retained Earnings	235,000
Total Assets	$450,000	Total Liabilities and Equity	$450,000

At acquisition, the carrying amount of Sunny Day’s net assets equaled their fair values, except for Machinery and Equipment, which was fair valued at $325,000 with a 10 year remaining useful life & no salvage value, and Land which was valued at $100,000.

In 20x1 and 20x2, Sunny Day’s net income earned, and dividends declared and paid were:

	fye 12/31/20x1	fye 12/31/20x2
Net income	$75,000	$100,000
Dividends declared and paid	$35,000	$45,000

In negotiating for the acquisition of its 15% investment in Sunny Day, Perez, Inc. was granted:

Representation on Sunny Day’s Board of Directors, 2 seats

The right to acquire Sunny Day products at a price below that of Sunny Day’s regular customers. Perez anticipates significant inter-entity business transactions with Sunny Day over the next several years.

A senior manager position within the Sunny Day management team. The Perez appointee can influence Sunny Day’s proposed borrowing arrangements and other major corporate policies.

Required

For Perez, Inc., prepare the following:

a. The journal entry to record their acquisition of the initial 1,500 share of Sunny Day.

b. A schedule allocating the purchase price to the net assets acquired, including goodwill, if applicable.

c. The required journal entries for fiscal years ending 20x1 and 20x2 related to Perez, Inc.’s investment in Sunny Day.

d. A schedule showing the balance in Perez’s “Investment in Sunny Day” account starting at 1/1/20x1 to 12/31/20x2.