Reference no: EM13150043
Burris Corporation acquired 80% of the outstanding stock of Pitts Company on January 1, 2009. Burris Company paid $1.2 Million in cash for the stock. At the time of the transaction, Pitts Company's book value was $925,000 although Burris assessed Pitts' total business fair value to be $1.5 Million. Since the transaction, Pitts Company has neither issued not reacquired any shares of its own stock.
The book values of Pitts' individual assets and liabilities approximate their acquisition-date fair values except for the patent account, which was undervalued by $350,000. The undervalued patents had a 5-year remaining life at the acquisition date. Any remaining excess fair value was attributed to goodwill. No goodwill impairments have occurred.
Pitts regularly sells inventory to Burris. Below you will find the details of intercompany inventory sales for the past three years:
Year Intercompany Intercompany Gross Profit Rate
Ending Inventory on Intercompany
Sales at Transfer Price Inventory Transfers
2009 $125,000 $80,000 25%
2010 220,000 125,000 28%
2011 300,000 160,000 25%
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