Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $751,680 cash. At the acquisition date, Sierras
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $751,680 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $939,600 although Sierras book value was only $683,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows: |
Book Value | Fair Value | |||||
Land | $ | 68,200 | $ | 268,200 | ||
Buildings and equipment (10-year remaining life) | 350,000 | 327,000 | ||||
Copyright (20-year life) | 105,000 | 175,000 | ||||
Notes payable (due in 8 years) | (205,000 | ) | (195,400 | ) | ||
|
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, 2015, for both companies. |
Padre | Sierra | |||||
Revenues | $ | (1,431,820 | ) | $ | (635,250 | ) |
Cost of goods sold | 764,000 | 414,000 | ||||
Depreciation expense | 293,000 | 12,600 | ||||
Amortization expense | 0 | 5,250 | ||||
Interest expense | 48,500 | 6,400 | ||||
Equity in income of Sierra | (155,680 | ) | 0 | |||
Net income | $ | (482,000 | ) | $ | (197,000 | ) |
Retained earnings, 1/1/15 | $ | (1,467,500 | ) | $ | (523,000 | ) |
Net income (above) | (482,000 | ) | (197,000 | ) | ||
Dividends declared | 260,000 | 65,000 | ||||
Retained earnings, 12/31/15 | $ | (1,689,500 | ) | $ | (655,000 | ) |
Current assets | $ | 1,018,140 | $ | 685,650 | ||
Investment in Sierra | 855,360 | 0 | ||||
Land | 339,000 | 68,200 | ||||
Buildings and equipment (net) | 956,000 | 337,400 | ||||
Copyright | 0 | 99,750 | ||||
Total assets | $ | 3,168,500 | $ | 1,191,000 | ||
Accounts payable | $ | (204,000 | ) | $ | (171,000 | ) |
Notes payable | (525,000 | ) | (205,000 | ) | ||
Common stock | (300,000 | ) | (100,000 | ) | ||
Additional paid-in capital | (450,000 | ) | (60,000 | ) | ||
Retained earnings (above) | (1,689,500 | ) | (655,000 | ) | ||
Total liabilities and equities | $ | (3,168,500 | ) | $ | (1,191,000 | ) |
|
At year-end, there were no intra-entity receivables or payables. |
Using the acquisition method, prepare the worksheet to consolidate these two companies. |
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