Question
Pullman, Inc. acquired a controlling interest in Sierra Company on 1/1/20x1. At that time, the book value of Sierra Companys net assets was $16,970,000, including
Pullman, Inc. acquired a controlling interest in Sierra Company on 1/1/20x1. At that time, the book value of Sierra Companys net assets was $16,970,000, including the following:
| Fair Value Book Value | Book Value Fair Value | Remaining Life |
Buildings | $2,700,000 | $3,400,000 | 7 years |
Equipment | 3,700,000 | 3,300,000 | 5 years |
Land | 1,700,000 | 2,550,000 | indefinite |
In acquiring their controlling interest, Pullman paid $10,450,000 cash in exchange for 55% of the outstanding voting common stock of Sierra. At the time of the acquisition, the fair value of 100% of Sierras outstanding common stock was $19,000,000. Pullman did not pay a control premium to acquire their 55% controlling interest.
Any consideration paid in excess of the fair value of net assets acquired is assigned to goodwill.
The account balances for Pullman, Inc. and Sierra Company at 12/31/20x1 are as follows:
| Pullman, Inc. | Sierra Company |
Revenues | (298,000,000) | (103,750,000) |
Expenses | 271,000,000 | 95,800,000 |
Equity in income of Sierra Company | (4,361,500) | 0 |
Net income | (31,361,500) | (7,950,000) |
|
|
|
Retained earnings, January 1, 20x1 | (2,500,000) | (100,000) |
Net income (above) | (31,361,500) | (7,950,000) |
Dividends paid | 5,000,000 | 3,000,000 |
Retained earnings, December 31, 20x1 | (28,861,500) | (5,050,000) |
|
|
|
Current Assets | 30,500,000 | 20,800,000 |
Investment in Sierra Company | 13,161,500 |
|
Land | 1,500,000 | 1,700,000 |
Buildings | 5,600,000 | 2,360,000 |
Equipment (net) | 3,100,000 | 2,960,000 |
Total assets | 53,861,500 | 27,820,000 |
|
|
|
Accounts payable | (3,100,000) | (4,900,000) |
Notes payable |
| (1,000,000) |
Common stock | (2,900,000) | (6,000,000) |
Additional paid-in capital | (19,000,000) | (10,870,000) |
Retained earnings, Dec. 31, 20x1 (above) | (28,861,500) | (5,050,000) |
Total liabilities and stockholders equity | (53,861,500) | (27,820,000) |
Required
- Prepare the journal entry to record Pullmans acquisition of Sierra Company.
- Prepare a schedule showing the determination of goodwill, if applicable, for this acquisition.
- Prepare a schedule showing the allocation of any related purchase price adjustments to the acquired companys assets, including the related annual amortizations, if applicable.
- For 12/31/20x1, prepare a consolidation worksheet for this transaction. Assume that no goodwill impairment adjustment is required. (For the format, consider the Exhibit 4.6 on page 167 & use Excel)
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