Question
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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