5 pfeifer corporation acquired an 80 interest in stern corporation several years ago 4307680

5) Pfeifer Corporation acquired an 80% interest in Stern Corporation several years ago when the book values and fair values of Stern's assets and liabilities were equal.  At the time of acquisition, the cost of the 80% interest was equal to 80% of the book value of Stern's net assets. Separate company income statements for Pfeifer and Stern for the year ended December 31, 2011 are summarized as follows:

PfeiferStern

Sales Revenue$1,000,000 $600,000

Investment income from Stern85,000

Cost of Goods Sold(600,000)(300,000)

Expenses(200,000)(200,000)

Net Income$285,000 $100,000

During 2010, Pfeifer sold merchandise that cost $120,000 to Stern for $180,000. Half of this merchandise remained in Stern's inventory at December 31, 2010. During 2011, Pfeifer sold merchandise that cost $150,000 to Stern for $225,000. One-third of this merchandise remained in Stern's December 31, 2011 inventory.

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