Parker, Inc., acquires 70 percent of Sawyer Company for $420,000. The remaining 30 percentof Sawyer's outstanding shares continue to trade at a collective value of $174,000. On theacquisition date, Sawyer has the following accounts:
Book Value Fair Value
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 210,000 $ 210,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 180,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 330,000
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (280,000) (280,000)
The buildings have a 10-year life. In addition, Sawyer holds a patent worth $140,000 that has afive-year life but is not recorded on its financial records. At the end of the year, the two companiesreport the following balances:
Parker Sawyer
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . .. $(900,000) $(600,000)
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 400,000
a. Assume that the acquisition took place on January 1. What figures would appear in a consolidated income statement for this year?
b. Assume that the acquisition took place on April 1. Sawyer's revenues and expensesoccurred uniformly throughout the year. What amounts would appear in a consolidatedincome statement for this year?