Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $790,560 cash. At the acquisition date, Sierras
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $790,560 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $988,200 although Sierras book value was only $662,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:
Book Value | Fair Value | ||||||
Land | $ | 61,000 | $ | 296,000 | |||
Buildings and equipment (10-year remaining life) | 284,000 | 246,000 | |||||
Copyright (20-year remaining life) | 103,000 | 221,000 | |||||
Notes payable (due in 8 years) | (184,000 | ) | (172,800 | ) | |||
For internal reporting purposes, Padre, Inc., employs the equity method to account for this investment. The following account balances are for the year ending December 31, 2018, for both companies.
Padre | Sierra | ||||||
Revenues | $ | (1,561,700 | ) | $ | (614,050 | ) | |
Cost of goods sold | 771,000 | 440,000 | |||||
Depreciation expense | 310,000 | 17,800 | |||||
Amortization expense | 0 | 5,150 | |||||
Interest expense | 48,900 | 6,100 | |||||
Equity in income of Sierra | (113,200 | ) | 0 | ||||
Net income | $ | (545,000 | ) | $ | (145,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,447,500 | ) | $ | (502,000 | ) | |
Net income | (545,000 | ) | (145,000 | ) | |||
Dividends declared | 260,000 | 65,000 | |||||
Retained earnings, 12/31/18 | $ | (1,732,500 | ) | $ | (582,000 | ) | |
Current assets | $ | 1,207,740 | $ | 698,950 | |||
Investment in Sierra | 851,760 | 0 | |||||
Land | 311,000 | 61,000 | |||||
Buildings and equipment (net) | 904,000 | 266,200 | |||||
Copyright | 0 | 97,850 | |||||
Total assets | $ | 3,274,500 | $ | 1,124,000 | |||
Accounts payable | $ | (283,000 | ) | $ | (198,000 | ) | |
Notes payable | (509,000 | ) | (184,000 | ) | |||
Common stock | (300,000 | ) | (100,000 | ) | |||
Additional paid-in capital | (450,000 | ) | (60,000 | ) | |||
Retained earnings (above) | (1,732,500 | ) | (582,000 | ) | |||
Total liabilities and equities | $ | (3,274,500 | ) | $ | (1,124,000 | ) | |
At year-end, there were no intra-entity receivables or payables.
Using the acquisition method, prepare the worksheet to consolidate these two companies. (For accounts where multiple consolidation entries are required, combine all debit entries into one amount and enter this amount in the debit column of the worksheet. Similarly, combine all credit entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)
PADRE INC., AND SIERRA CORPORATION Consolidated Worksheet For Year Ending December 31, 2018 Consolidation Entries Noncontrolling Consolidated Accounts Padre Sierra Debit Credit Interest Totals $ (614,050) 440,000 17,800 5,150 6,100 Cost of goods sold Depreciation expense 771,000 310,000 Interest expense Equity in income of Sierra Separate company net income Consolidated net income 48,900 (113,200) $ (545,000) S(145,000) NI to noncontrolling interest NI to Padre Company Retained earnings 1/1 Net income (above) Dividends declared $ (502,000) (545,000(145,000) 65,000 732,500(582,000) $1,207,740S698,950 1,447,500 260,000 Retained Current assets Investment in Sierra Land Buildings and equipment (net) Copyright earnings 12/31 851,760 311,000 904,000 61,000 266,200 97,850 $ 3,274,500 S 1,124,000 $(283,000) (198,000) (509,000)(184,000) Total assets Accounts payable Notes payable NCI in Sierra 1/1 NCI in Sierra 12/31 Common stock Additional paid-in capital Retained earnings 12/31 (above) Total liabilities and stockholders' equity (300,00000,000) (60,000) 1,732,500(582,000) 1,124,000 (450,000) (3,274,500 PADRE INC., AND SIERRA CORPORATION Consolidated Worksheet For Year Ending December 31, 2018 Consolidation Entries Noncontrolling Consolidated Accounts Padre Sierra Debit Credit Interest Totals $ (614,050) 440,000 17,800 5,150 6,100 Cost of goods sold Depreciation expense 771,000 310,000 Interest expense Equity in income of Sierra Separate company net income Consolidated net income 48,900 (113,200) $ (545,000) S(145,000) NI to noncontrolling interest NI to Padre Company Retained earnings 1/1 Net income (above) Dividends declared $ (502,000) (545,000(145,000) 65,000 732,500(582,000) $1,207,740S698,950 1,447,500 260,000 Retained Current assets Investment in Sierra Land Buildings and equipment (net) Copyright earnings 12/31 851,760 311,000 904,000 61,000 266,200 97,850 $ 3,274,500 S 1,124,000 $(283,000) (198,000) (509,000)(184,000) Total assets Accounts payable Notes payable NCI in Sierra 1/1 NCI in Sierra 12/31 Common stock Additional paid-in capital Retained earnings 12/31 (above) Total liabilities and stockholders' equity (300,00000,000) (60,000) 1,732,500(582,000) 1,124,000 (450,000) (3,274,500Step by Step Solution
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