Pullman, Inc. acquired a controlling interest in Sierra Company on 1/1/20×1. At that time, the book value of Sierra Company’s net assets was $16,970,000, including the following:

On 1/1/20×1, Petwoud Company acquired 100% of the $1 par value outstanding voting common stock of Supagud, Inc. for a cash payment of $600,000. At the acquisition date, the fair value of Petwoud Company’s common stock was $20 per share.  Below is the summary balance sheet information of Supagud, Inc. at acquisition (1/1/20×1):

Debit      Credit

Accounts payable                                                          60,000

Accounts receivable                                     50,000

Additional paid-in capital                                              60,000

Buildings (net) (20-year life)                      140,000

Cash and short-term investments             70,000

Common stock                                                              300,000

Equipment (net) (8-year life)                     240,000

Intangible assets (indefinite life)             110,000

Land                                                              90,000

Long-term liabilities (mature 12/31/x3)                   180,000

Retained earnings, 1/1/x1                                          120,000

Supplies                                                        20,000

Totals                                                           720,000     720,000

Book value of net equity                           480,000

During fiscal year-ending 12/31/20×1 and 12/31/20×2, Supagud, Inc. generated net income and paid dividends as follows:

Net income  Dividends

20×1                     $104,000     $13,000

20×2                     $142,000     $30,000

As of 1/1/20×1, Supagud’s land had a fair value of $102,000, its buildings were valued at $188,000, and its equipment was appraised at $216,000.  According to Petwoud Company’s analysis, they will record any excess of consideration paid over fair value of assets and liabilities acquired as a Patent asset to be amortized over 6 years.


A.      Using the acquisition method and assuming that Petwoud dissolves Supagud, Inc. so it is no longer in business, prepare Petwoud Company’s journal entry to record the acquisition of Supagud, Inc. at 1/1/20×1.

For B. and C. below, assume Supagud remains in business as a separate operating company and that, for internal accounting purposes, Petwoud accounts for their investment in Supagud, Inc. using the equity method:

B.       Prepare Petwoud Company’s journal entry to record the acquisition of Supagud, Inc. at 1/1/20×1.

C.       Prepare Petwoud Company’s worksheet consolidation journal entries for:

i.            December 31, 20×1 and

ii.            December 31, 20×2.