Question
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $809,120 cash. At the acquisition date, Sierras
Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $809,120 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $1,011,400 although Sierras book value was only $669,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows: |
Book Value | Fair Value | |||||
Land | $ | 60,900 | $ | 320,900 | ||
Buildings and equipment (10-year remaining life) | 330,000 | 298,000 | ||||
Copyright (20-year life) | 157,000 | 261,000 | ||||
Notes payable (due in 8 years) | (167,000 | ) | (156,600 | ) | ||
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, 2015, for both companies. |
Padre | Sierra | |||||
Revenues | $ | (1,408,440 | ) | $ | (601,350 | ) |
Cost of goods sold | 716,000 | 422,000 | ||||
Depreciation expense | 282,000 | 11,000 | ||||
Amortization expense | 0 | 7,850 | ||||
Interest expense | 51,800 | 5,500 | ||||
Equity in income of Sierra | (121,360 | ) | 0 | |||
Net income | $ | (480,000 | ) | $ | (155,000 | ) |
Retained earnings, 1/1/15 | $ | (1,455,000 | ) | $ | (509,000 | ) |
Net income (above) | (480,000 | ) | (155,000 | ) | ||
Dividends declared | 260,000 | 65,000 | ||||
Retained earnings, 12/31/15 | $ | (1,675,000 | ) | $ | (599,000 | ) |
Current assets | $ | 1,048,520 | $ | 585,950 | ||
Investment in Sierra | 878,480 | 0 | ||||
Land | 358,000 | 60,900 | ||||
Buildings and equipment (net) | 920,000 | 319,000 | ||||
Copyright | 0 | 149,150 | ||||
Total assets | $ | 3,205,000 | $ | 1,115,000 | ||
Accounts payable | $ | (242,000 | ) | $ | (189,000 | ) |
Notes payable | (538,000 | ) | (167,000 | ) | ||
Common stock | (300,000 | ) | (100,000 | ) | ||
Additional paid-in capital | (450,000 | ) | (60,000 | ) | ||
Retained earnings (above) | (1,675,000 | ) | (599,000 | ) | ||
Total liabilities and equities | $ | (3,205,000 | ) | $ | (1,115,000 | ) |
At year-end, there were no intra-entity receivables or payables. |
Question Using the acquisition method, prepare the worksheet to consolidate these two companies (please fill out chart)s. |
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