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Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $802,720 cash. At the acquisition date, Sierra's

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Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $802,720 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessed at $1,003,400 although Sierra's book value was only $690,000. Also, several individual items on Sierra's financial records had fair values that differed from their book values as follows: Book Value Fair Value Land $ 65,000 $ 290,000 Buildings and equipment ( 10-year remaining life) 287,000 263,000 Copyright (20-year remaining life) 122,000 216,000 Notes payable (due in 8 years) (176,000) (157,600) 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, 2021, for both companies. Padre Sierra Revenues $(1,394,980) $ (684,900) Cost of goods sold 774.000 432.000 Depreciation expense 274,000 11,600 Amortization expense 6.100 Interest expense 52,100 9.200 Equity in income of Sierra (177.120) -0- Net income $ (472,000) $ (226,000) Retained earnings, 1/1/21 $(1.275,000) $ (530,000) Net income (472,000) (226,000) Dividends declared 260,000 65.000 Retained earnings, 12/31/21 S(1,487,000) 5 (691,000) Current assets 856,160 764.700 Investment in Sierra 927.840 Land 360,000 65.000 Buildings and equipment (net) 909,000 275,400 Copyright -0- 115,900 Total assets $ 3.053,000 $ 1,221,000 Accounts payable $ (275.000) $ (194.000) Notes payable (541,000) (176,000) Common stock (300,000) (100,000) Additional paid-in capital (450,000) (60,000) Retained earnings (above) (1,487,000) (691,000) Total liabilities and equities $(3.053,000) S(1.221,000)Journal Entry Worksheet Date Accounts Debit Credit Entry S Dec. 31, 2021 Common Stock $1,00,000 Additional Paid-in-capital $60,000 Retained Earnings, 1/1/21 $5,30,000 Investment in Sierra $5,52,000 NCI in Net Assets $1,38,000 Entry A |Dec. 31, 2021 Land $2,25,000 Copyright $94,000 Notes Payable $18,400 Buildings and Equipment $24,000 Investment in Sierra $2,50,720 NCI in Net Assets $62,680 Entry | Dec. 31, 2021 Equity in income of Sierra $1,77,120 Investment in Sierra $1,77,120 Entry D Dec. 31, 2021 Investment in Sierra ($65,000 *80%) $52,000 Dividends declared $52,000 Entry E Dec. 31, 2021 Depreciation Expense $2,300 Interest Expense $2,300 Buildings and Equipment $2,400 Copyrights $4,700 Notes Payable $2,300Workings Total fair value of Sierra Corporation 10,03,400 Book value of Sierra Corporation -6,90,000 Fair value in excess of book value 3,13,400 Excess of fair value to assigned to: Land 2,25,000 Buildings and Equipment -24,000 Copyright 94,000 Notes Payable 18,400 Goodwill Amortization of excess of fair value assigned to assets: Value at Annual Assets Remaining life Value at year acquisition amortization end Land $ 2,25,000 Indefinite 2,25,000 Buildings S -24,000 10 -2,400 21,600 Copyright $ 94,000 20 S 4,700 S 89,300

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