Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $826,240 cash. At the acquisition date, Sierras
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $826,240 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $1,032,800 although Sierras book value was only $645,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:
Book Value | Fair Value | ||||||
Land | $ | 66,400 | $ | 327,400 | |||
Buildings and equipment (10-year remaining life) | 360,000 | 340,000 | |||||
Copyright (20-year remaining life) | 146,000 | 280,000 | |||||
Notes payable (due in 8 years) | (196,000 | ) | (183,200 | ) | |||
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 | $ | (1,534,940 | ) | $ | (675,900 | ) | |
Cost of goods sold | 756,000 | 424,000 | |||||
Depreciation expense | 354,000 | 18,600 | |||||
Amortization expense | 0 | 7,300 | |||||
Interest expense | 53,500 | 9,000 | |||||
Equity in income of Sierra | (168,560 | ) | 0 | ||||
Net income | $ | (540,000 | ) | $ | (217,000 | ) | |
Retained earnings, 1/1/18 | $ | (1,377,500 | ) | $ | (485,000 | ) | |
Net income | (540,000 | ) | (217,000 | ) | |||
Dividends declared | 260,000 | 65,000 | |||||
Retained earnings, 12/31/18 | $ | (1,657,500 | ) | $ | (637,000 | ) | |
Current assets | $ | 1,066,700 | $ | 648,500 | |||
Investment in Sierra | 942,800 | 0 | |||||
Land | 316,000 | 66,400 | |||||
Buildings and equipment (net) | 919,000 | 341,400 | |||||
Copyright | 0 | 138,700 | |||||
Total assets | $ | 3,244,500 | $ | 1,195,000 | |||
Accounts payable | $ | (282,000 | ) | $ | (202,000 | ) | |
Notes payable | (555,000 | ) | (196,000 | ) | |||
Common stock | (300,000 | ) | (100,000 | ) | |||
Additional paid-in capital | (450,000 | ) | (60,000 | ) | |||
Retained earnings (above) | (1,657,500 | ) | (637,000 | ) | |||
Total liabilities and equities | $ | (3,244,500 | ) | $ | (1,195,000 | ) | |
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 Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra Separate company net income Consolidated net income (1,534,940 756,000 354,000 (675,900) 424,000 18,600 7,300 9.000 53,500 (168,560) $ (540,000) (217,000) NI to noncontrolling interest NI to Padre Company Retained earnings 1/1 Net income (above) Dividends declared $ (1,377,500) (485,000) (540,000) (217,000) 65,000 $(1,657,500) (637,000) $ 1,066,700$ 648,500 260,000 Retained eamings 12/31 Current assets Investment in Sierra Land Buildings and equipment (net) Copyright 942,800 316,000 919,000 66,400 341.400 138,700 3,244,500$1,195,000 $ (282,000) (202,000) (555,000)(196,000) 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 (300,000)(100,000) (60,000) (1,657.500(637,000) $(3,244,500(,195,000) (450,000) PADRE INC., AND SIERRA CORPORATION Consolidated Worksheet For Year Ending December 31, 2018 Consolidation Entries Noncontrolling Consolidated Accounts Padre Sierra Debit Credit Interest Totals Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra Separate company net income Consolidated net income (1,534,940 756,000 354,000 (675,900) 424,000 18,600 7,300 9.000 53,500 (168,560) $ (540,000) (217,000) NI to noncontrolling interest NI to Padre Company Retained earnings 1/1 Net income (above) Dividends declared $ (1,377,500) (485,000) (540,000) (217,000) 65,000 $(1,657,500) (637,000) $ 1,066,700$ 648,500 260,000 Retained eamings 12/31 Current assets Investment in Sierra Land Buildings and equipment (net) Copyright 942,800 316,000 919,000 66,400 341.400 138,700 3,244,500$1,195,000 $ (282,000) (202,000) (555,000)(196,000) 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 (300,000)(100,000) (60,000) (1,657.500(637,000) $(3,244,500(,195,000) (450,000)
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