Prime Company acquired 75%

of the common stock of Second Company January 1, year one, for $450,000

The consideration given was proportional to Second's fair value.

On that date, Second had the following trial balance:

account debit credit

Additional paid in capital $100,000

Building (12-year life) $250,000

Common stock 170,000

Current assets 170,000

Equipment (6-yr life) 160,000

Land 110,000

Liabilities (due in 4 years) 300,000

Retained earnings 1/year 1 120,000

Totals $690,000 $690,000

During year one, Second reported net income of $60,000

During year one, Second paid dividends of $30,000

During year two, Second reported net income of $80,000

During year two, Second paid dividends of $40,000

On January 1, year one, fair values were:

Land $146,000

Building $286,000

Equipment $184,000

There was no impairment of any goodwill arising from the acquisition.

Please indicate clearly which method you choose for Prime to use to

account for its acquisition of Second Company.

Problem 4. Use the data for the Prime Company acquisition of some

of Second Company to prepare the consolidation worksheet entries

for December 31 of year one.

Problem 5 Use the data for the Prime Company acquisition of some

of Second Company to prepare the consolidation worksheet entries

for December 31 of year two.