Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $757,280 cash. At the acquisition date, Sierras

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $757,280 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $946,600 although Sierras book value was only $696,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:

Book Value Fair Value
Land $ 66,300 $ 251,300
Buildings and equipment (10-year remaining life) 294,000 240,000
Copyright (20-year remaining life) 192,000 300,000
Notes payable (due in 8 years) (177,000 ) (165,400 )

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, 2021, for both companies.

Padre Sierra
Revenues $ (1,447,260 ) $ (649,500 )
Cost of goods sold 755,000 423,000
Depreciation expense 340,000 18,400
Amortization expense 0 9,600
Interest expense 44,700 6,500
Equity in income of Sierra (152,440 ) 0
Net income $ (460,000 ) $ (192,000 )
Retained earnings, 1/1/21 $ (1,382,500 ) $ (536,000 )
Net income (460,000 ) (192,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/21 $ (1,582,500 ) $ (663,000 )
Current assets $ 913,780 $ 671,700
Investment in Sierra 857,720 0
Land 350,000 66,300
Buildings and equipment (net) 870,000 275,600
Copyright 0 182,400
Total assets $ 2,991,500 $ 1,196,000
Accounts payable $ (192,000 ) $ (196,000 )
Notes payable (467,000 ) (177,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,582,500 ) (663,000 )
Total liabilities and equities $ (2,991,500 ) $ (1,196,000 )

At year-end, there were no intra-entity receivables or payables.

Prepare a worksheet to consolidate the financial statements of these two companies.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Audit And Assurance Principles And Practices In Singapore

Authors: Dr Ernest Kan

5th Edition

9814838136, 978-9814838139

More Books

Students also viewed these Accounting questions