On January 1, 2011, Peterson Corporation exchanged $1,090,000 fair-value consideration for all of the outstanding voting stock of Santiago, Inc. At the acquisition date, Santiago had a book value equal to $950,000. Santiago’s individual assets and liabilities had fair values equal to their respective book values except for the patented technology account, which was undervalued by $240,000 with an estimated remaining life of six years. The Santiago acquisition was Peterson’s only business combination for the year. In case expected synergies did not materialize, Peterson Corporation wished to prepare for a potential future spin-off of Santiago, Inc. Therefore, Peterson had Santiago maintain its separate incorporation and independent accounting information system as elements of continuing value. On December 31, 2011 each company submitted the following financial statements for consolidation.

 

Peterson Corp.	Santiago, Inc.
Income Statement
Revenues	535,000	495,000
Cost of goods sold	170,000	155,000
Gain on bargain purchase	100,000	–0–
Depreciation and amortization	125,000	140,000
Equity earnings from Santiago	160,000	–0–
Net income	500,000	200,000
Statement of Retained Earnings
Retained earnings, 1/1	1,500,000	650,000
Net income (above)	-500,000	200,000
Dividends paid	200,000	50,000
Retained earnings, 12/31	1,800,000	-800,000
Balance Sheet
Current assets	190,000	300,000
Investment in Santiago	1,300,000	–0–
Trademarks	100,000	200,000
Patented technology	300,000	400,000
Equipment	610,000	300,000
Total assets	2,500,000	1,200,000
Liabilities	165,000	100,000
Common stock	535,000	300,000
Retained earnings, 12/31	1,800,000	800,000
Total liabilities and equity	2,500,000	1,200,000

 

a. Show how Peterson determined the following account balances

 

• Gain on bargain purchase

 

• Earnings from Santiago

 

• Investment in Santiago

b. Prepare a December 31, 2011, consolidated worksheet for Peterson and Santiago