Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $791,520 cash. At the acquisition date, Sierras
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $791,520 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $989,400 although Sierras book value was only $638,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows: Book Value Fair Value Land $ 65,200 $ 307,200 Buildings and equipment (10-year remaining life) 295,000 276,000 Copyright (20-year remaining life) 104,000 218,000 Notes payable (due in 8 years) (187,000 ) (172,600 ) 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, 2018, for both companies. Padre Sierra Revenues $ (1,401,180 ) $ (647,000 ) Cost of goods sold 770,000 426,000 Depreciation expense 264,000 15,500 Amortization expense 0 5,200 Interest expense 50,700 5,300 Equity in income of Sierra (151,520 ) 0 Net income $ (468,000 ) $ (195,000 ) Retained earnings, 1/1/18 $ (1,492,500 ) $ (478,000 ) Net income (468,000 ) (195,000 ) Dividends declared 260,000 65,000 Retained earnings, 12/31/18 $ (1,700,500 ) $ (608,000 ) Current assets $ 998,460 $ 681,500 Investment in Sierra 891,040 0 Land 349,000 65,200 Buildings and equipment (net) 944,000 279,500 Copyright 0 98,800 Total assets $ 3,182,500 $ 1,125,000 Accounts payable $ (205,000 ) $ (170,000 ) Notes payable (527,000 ) (187,000 ) Common stock (300,000 ) (100,000 ) Additional paid-in capital (450,000 ) (60,000 ) Retained earnings (above) (1,700,500 ) (608,000 ) Total liabilities and equities $ (3,182,500 ) $ (1,125,000 ) 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 | ||||||||||||
Accounts | Padre | Sierra | Debit | Credit | Noncontrolling Interest | Consolidated Totals | ||||||
Revenues | $(1,401,180) | $(647,000) | ||||||||||
Cost of goods sold | 770,000 | 426,000 | ||||||||||
Depreciation expense | 264,000 | 15,500 | ||||||||||
Amortization expense | 0 | 5,200 | ||||||||||
Interest expense | 50,700 | 5,300 | ||||||||||
Equity in income of Sierra | (151,520) | 0 | ||||||||||
Separate company net income | $(468,000) | $(195,000) | ||||||||||
Consolidated net income | $0 | |||||||||||
NI to noncontrolling interest | ||||||||||||
NI to Padre Company | $0 | |||||||||||
Retained earnings 1/1 | $(1,492,500) | $(478,000) | ||||||||||
Net income (above) | (468,000) | (195,000) | ||||||||||
Dividends declared | 260,000 | 65,000 | ||||||||||
Retained earnings 12/31 | $(1,700,500) | $(608,000) | $0 | |||||||||
Current assets | $998,460 | $681,500 | ||||||||||
Investment in Sierra | 891,040 | |||||||||||
Land | 349,000 | 65,200 | ||||||||||
Buildings and equipment (net) | 944,000 | 279,500 | ||||||||||
Copyright | 0 | 98,800 | ||||||||||
Total assets | $3,182,500 | $1,125,000 | $0 | |||||||||
Accounts payable | $(205,000) | $(170,000) | ||||||||||
Notes payable | (527,000) | (187,000) | ||||||||||
NCI in Sierra 1/1 | ||||||||||||
NCI in Sierra 12/31 | $0 | |||||||||||
Common stock | (300,000) | (100,000) | ||||||||||
Additional paid-in capital | (450,000) | (60,000) | ||||||||||
Retained earnings 12/31 (above) | (1,700,500) | (608,000) | ||||||||||
Total liabilities and stockholders' equity | $(3,182,500) | $(1,125,000) | $0 | $0 | $0 |
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