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Example_Partial Ownership

Example_Partial Ownership - Partial Ownership...

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Partial Ownership Illustration (Equity Method). On January 1, 2011, Pierson Corporation exchanged $1,710,000 cash for 90% of the outstanding voting stock of Steele Company. The consideration transferred by Pierson provided a reasonable basis for assessing the total 1/1/11 fair value of Steele Company. At the acquisition date, Steele reported the following owner’s equity amounts in its balance sheet: Common stock $400,000 Additional paid-in capital $60,000 Retained earnings $265,000 In determining its acquisition offer, Pierson noted that the values for Steele’s recorded assets and liabilities approximated their fair values. Pierson also observed that Steele had developed internally a customer base with an assessed fair value of $800,000 that was not reflected on Steele’s books. Pierson expected both cost and revenue synergies from the combination. At the acquisition date, Pierson prepared the following fair-value allocation schedule: Fair value of Steele Company $1,900,000 Book value of Steele Company 725,000
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