Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $757,280 cash. At the acquisltion date, Slerra's total fair value, Including the noncontrolling Interest, was assessed at $946,600 although Sierras book value was only $696,000. Also, several IndMMdual tems on Slerra's financlal records had falr values that differed from thelr book values as follows: Land Buildings and equipnent (18-year remaining life) Copyright (28-year remaining life) Notes payable (due in 8 years) Book Value Fair Value $ 66,388 251,308 248,888 388,888 (177,88) (165,488) 294,800 192,800 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, 2018, for both companles. Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra $ (1,447,268) (649,588) 755,868 348,888 423 , еее 18,488 9,680 6,500 44,780 152,448 Net income $ (468,868) $ 192,888) Retained earnings, 1/1/18 Net income S (1,382,588) (536,800) (192,888) (468,868) 266,886 Dividends declared 65,888 s (1,582,588) $ (663,888) Retained earnings, 12/31/18 Current assets Investnent in Sierra 913,788 857,728 350 , еее 876,888 66,388 275,608 182,400 $ 1,196,808 Buildings and equipnent (net) Copyr ight Total assets 2,991,500 Accounts payable Notes payable Comnon stock Additional paid-in capital Retained earnings (above) 196,888) (177,898) (188,888) (68,808) 1.582.588(663,888) S (1,196,888) (467,886) (388,888) (458,888) Total liabilities and equities S (2,991,508 At year-end, there were no Intra-entity recelvables or payables. Using the acqulsition method, prepare the worksheet to consolidate 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 entrles Into one amount and enter this amount in the credit column of the worksheet.

Answer 1

Acquisition date subsidairy fair value (given) Book value of subsidairy (given) 946600 696000 Fair value in excess of book value 250600 Allocation to specific account based on difference in fair value & book value Book value Fair value Excess Land Building Copyright Note payables 66300 251300 185000 54000 192000 300000 108000 11600 294000 240000 177000165400 250600 Total 0 Annual excess amortization Remaing useful Life Building and equipment copyright Notepaybles 54000 108000 11600 5400 5400 1450 20 8 Total 1450

Amount Remark -2096760 Adding book value of both companies Revenues Cost of goods sold Depreciation expense Amortization expense Interest expens Equity income of Sierra 1178000 Adding book value of both companies 353000 Adding boo alue of both companies less excess depreciation of 5400 15000 Adding book value of both companies plus excess adjustment of 5400 52650 Adding book value of both companies plus excess adjustment of 1450 eliminated so that individual reyenues & e xpen ses of subsidairy can be include in consolidated figure Consolidated net income Net income attributable to Non c( -38690 income reported by subsidary 192000 less 1450 multiplied by 20% non controlling interest share Net income attributable to Padre459420 Consolidated income less non controlling income -498110 Revenues less expense:s Retainedearning Dividend decalred Retainedearning Parrent company balance 260000 Parrent company balance; subsidairy declarations to parent are intra entity, declaration to outsider decrease non controlling interest balance -1581920 Parent retained earning as we are applying equity method 1585480 Adding book value of both companies rrent assets nuestment in sierra land building copyright total assets O eliminated so that individual asset & liabilities of subsidairy canbe include in consolidated figure 601300 Adding book value of both companies plus ecess allocation 1097000 Adding book value of both companies less excess allocation plus amotization 285000 Adding boo alue of both companies plus excess allocation less amotization 3568780 -388000 Adding book value of both companies -633850 Adding book value of both companies less excess allocation plus amotization account payable Note payables Non controlling subsidairy Common stock Additional paid up capital Retainedearning 215010 20% OF fair value on date of acquisition plus net income attribuable to non controlling interest less dividend declared for non controlling Parrent company balance Parrent company balance -450000 -1581920 As computed above

Consolidation Entries Non Controlling interest Consolidated Totals Padre Sierra Revenues Cost of goods sold Depreciation expense Amortization expense Interest expens Equity income of Sierra Seprate company net income Consolidated net income Net income attributable to Non controlling Net income attributable to Padre 1447260-649500 755000 423000 340000 18400 1178000 0 9600 (E) 447006500 (E) 152440 -460000-192000 -498110 38690 -459420 38690 Retained earning Net income Dividend decalred Retained earning 1382500536000 (S) -460000-192000 260000 65000 1582500-663000 536000 3 -459420 13000 1581920 Current assets Investment in sierra 913780671700 52000 (S) 152440 land building copyright total assets 350000 66300 (A) 870000 275600 (E) 182400 (A) 601300 1097000 5400 (A 108000 (E) 2991500 1196000 3568780

account payable Note payables Non controlling subsidairy -192000-196000 388000 1450 139200 50120 467000 177000 (A) 11600 (E) 633850 189320 215010 215010 Common stock Additional paid up capital Retained earning Total liabilities and equity 300000 -100000 (S) 450000 -60000 (S) 1582500-663000 2991500-1196000 100000 60000 -450000 1581920 3568780 1217290 1217290

The consolidation entries are designed to Elimination of subsidiary's stockholders' equity along with recognition of January 1 noncontrolling interest. (S) .Allocation of subsidiary total fair value in excess of book value, unamortized balances as of January 1. (A) Elimination of intra-entity income (equity accrual less amortization expenses). (I) Elimination of intra-entity dividend payments. (D) Recognition of amortization expenses of fair-value allocations. (E)

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