On July 1, 2014, Piper Corporation issued 23,000 shares of its own $2 par value common stock for 40,000 shares of the outstanding stock of Sector Inc. in an acquisition

Piper common stock at July 1, 2014 was selling at $16 per share. Just before the business combination, balance sheet information of the two corporations was as follows:
Piper Sector Sector
Book Book Fair
Value Value Value
Cash $25,000 $17,000 $17,000
Inventories 55,000 42,000 47,000
Other current assets 110,000 40,000 30,000
Land 100,000 45,000 35,000
Plant and equipment-net 660,000 220,000 280,000
$950,000 $364,000 $409,000

Liabilities $220,000 $70,000 $75,000
Capital stock, $2 par value 500,000 100,000
Additional paid-in capital 170,000 90,000
Retained earnings 60,000 104,000
$950,000 $364,000

Required:
1. Prepare the journal entry on Piper Corporation's books to account for the investment in Sector Inc.

2. Prepare a consolidated balance sheet for Piper Corporation and Subsidiary immediately after the business combination.
What will be an ideal response?

Requirement 1:
Investment in Sector Inc. 368,000
Capital stock 46,000
Additional paid-in capital 322,000

Requirement 2:
Preliminary computations
Sector stock outstanding $100,000
$100,000 / $2 par value = 50,000 shares o/s

40,000 purchased / 50,000 = 80%

Fair value (purchase price) of 80% interest acquired $368,000
Implied fair value of Sector ($368,000 / 80%) 460,000
Book value of Sector's net assets (294,000)
Excess fair value over book value acquired = $166,000

Allocation of excess of fair value over book value:
Inventory $5,000
Other current assets (10,000)
Land (10,000)
Plant and Equipment 60,000
Liabilities (5,000)
Remainder to goodwill 126,000
Excess of fair value over book value $166,000

Piper Corporation and Subsidiary
Consolidated Balance Sheet Working Papers
July 1, 2014