Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $826,240 cash. At the acquisition date, Sierra's total fair value, including the noncontrolling interest, was assessed at $1,032,800 although Sierra's book value was only $645,000. Also, several individual items on Sierra's financial records had fair values that differed from their book values as follows: Book Value Fair Value Land Buildings and equipment (10-year remaining life) Copyright (20-year remaining life) Notes payable (due in 8 years) 360,000 146,000 (196,000) $66, 400 327,400 340,000 280,000 (183,200) 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 companies. Sierra Revenues (1,534,940)675,900) Cost of goods sold Depreeiation expense Amortization Interest expense Equity in income of Sierra 756,000 354,000 424,000 18,600 7,300 9,000 expense 53,500 168,56 0 Net income (540,000) (217,000) Retained earnings, 1/1/18 Net income Dividends deelared $ (1,377,500) 485, 000) (217,000) (540,000) 260,000 65,000 Retained earnings, 12/31/18 Current assets Investment in Sierra Land Buildings and equipment (net) Copyright (1,657,500) (637,000) $ 1,066,700 648,500 942,800 316,000 919, 000 66,400 341,400 138 700 Total assets S 3,244,5001,195,000 ts payable Notes pavable Common stock Additional paid-in capital Retained earnings (above) $ (282,000) (202, 000) 196,000) (100,000) 60,000) 555,000) (300,000) 450,000) .657,500 637. 000 Total iabilities and equities $ (3,244,500) 1,195,000) At year-end, there were no intra-entity receivables or payables. Using the acquisition 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 entries into one amount and enter this amount in the credit column of the worksheet. Amounts in the Debit and Credit columns should be entered as positive. Negative amounts for the Noncontrolling Interest and Consolidated Totals columns should be entered with a minus sign.)

Answer 1

Note: To understand how the above consolidated figures arrive check the below consolidation worksheet.