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Problem 4-40 (Algo) (LO 4-1, 4-5, 4-6) Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for

Problem 4-40 (Algo) (LO 4-1, 4-5, 4-6)

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, for $778,080 cash. At the acquisition date, Sierras total fair value, including the noncontrolling interest, was assessed at $972,600 although Sierras book value was only $604,000. Also, several individual items on Sierras financial records had fair values that differed from their book values as follows:

Book Value Fair Value
Land $ 66,700 $ 323,700
Buildings and equipment (10-year remaining life) 332,000 318,000
Copyright (20-year remaining life) 129,000 239,000
Notes payable (due in 8 years) (148,000 ) (132,400 )

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, 2021, for both companies.

Padre Sierra
Revenues $ (1,488,840 ) $ (605,850 )
Cost of goods sold 790,000 380,000
Depreciation expense 294,000 13,500
Amortization expense 0 6,450
Interest expense 48,000 5,900
Equity in income of Sierra (155,160 ) 0
Net income $ (512,000 ) $ (200,000 )
Retained earnings, 1/1/21 $ (1,500,000 ) $ (444,000 )
Net income (512,000 ) (200,000 )
Dividends declared 260,000 65,000
Retained earnings, 12/31/21 $ (1,752,000 ) $ (579,000 )
Current assets $ 1,073,760 $ 619,250
Investment in Sierra 881,240 0
Land 388,000 66,700
Buildings and equipment (net) 925,000 318,500
Copyright 0 122,550
Total assets $ 3,268,000 $ 1,127,000
Accounts payable $ (266,000 ) $ (240,000 )
Notes payable (500,000 ) (148,000 )
Common stock (300,000 ) (100,000 )
Additional paid-in capital (450,000 ) (60,000 )
Retained earnings (above) (1,752,000 ) (579,000 )
Total liabilities and equities $ (3,268,000 ) $ (1,127,000 )

At year-end, there were no intra-entity receivables or payables.

Prepare a worksheet to consolidate the financial statements of 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. Input all amounts as positive values.)

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