Question
Pie Company purchased 70% of Sal Company's outstanding common stock on December 31 for $500,000. As of the date of the purchase by Pie Company,
Pie Company purchased 70% of Sal Company's outstanding common stock on December 31 for $500,000. As of the date of the purchase by Pie Company, Sal Company's balance sheet displayed $1,000,000 of net assets. The fair value of the net assets was determined to be $1,200,000. (1) Prepare the journal entry to record the Pie's purchase using the equity method. (2) On December 31, what amount of equity method goodwill results from this acquisition? (3) How would consolidated financial statements present the investment account when combining the balance sheets of Pie Company and Sal Company at December 31 after the acquisition? Your answer should explain the value of the investment account and the goodwill account in the consolidated financial statements balance sheet total column and how worksheet journal entries would be used to consolidate the 2 companies. Your answer could be several sentences and specific line items and dollar values.
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