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Problem 4-37 (LO 4-1, 4-5, 4-6) Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $754,080

Problem 4-37 (LO 4-1, 4-5, 4-6)

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $754,080 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $942,600 although Sierras book value was only $659,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:

Book Value Fair Value
Land $ 63,000 $ 297,000

Buildings and equipment (10-year remaining life)

355,000 311,000
Copyright (20-year life) 137,000 217,000
Notes payable (due in 8 years) (155,000 ) (141,400 )

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 $ (1,427,540 ) $ (657,900 )
Cost of goods sold 752,000 413,000
Depreciation expense 292,000 11,500
Amortization expense 0 6,850
Interest expense 43,500 6,550
Equity in income of Sierra (174,960 ) 0
Net income $ (515,000 ) $ (220,000 )
Retained earnings, 1/1/15 $ (1,362,500 ) $ (499,000 )
Net income (above) (515,000 ) (220,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/15 $ (1,617,500 ) $ (654,000 )
Current assets $ 941,460 $ 650,350
Investment in Sierra 877,040 0
Land 308,000 63,000
Buildings and equipment (net) 924,000 343,500
Copyright 0 130,150
Total assets $ 3,050,500 $ 1,187,000
Accounts payable $ (218,000 ) $ (218,000 )
Notes payable (465,000 ) (155,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,617,500 ) (654,000 )
Total liabilities and equities $ (3,050,500 ) $ (1,187,000 )

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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