Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $796,960 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $996,200 although Sierra’s book value was only $623,000. 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	$	60,600			$	286,600
Buildings and equipment (10-year remaining life)		340,000				322,000
Copyright (20-year remaining life)		172,000				322,000
Notes payable (due in 8 years)		(132,000	)			(116,800	)

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 companies.

	Padre				Sierra
Revenues	$	(1,396,980	)		$	(657,250	)
Cost of goods sold		736,000				399,000
Depreciation expense		298,000				15,100
Amortization expense		0				8,600
Interest expense		50,100				5,550
Equity in income of Sierra		(177,120	)			0
Net income	$	(490,000	)		$	(229,000	)
Retained earnings, 1/1/18	$	(1,380,000	)		$	(463,000	)
Net income		(490,000	)			(229,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,610,000	)		$	(627,000	)
Current assets	$	854,920			$	569,100
Investment in Sierra		922,080				0
Land		369,000				60,600
Buildings and equipment (net)		955,000				324,900
Copyright		0				163,400
Total assets	$	3,101,000			$	1,118,000
Accounts payable	$	(220,000	)		$	(199,000	)
Notes payable		(521,000	)			(132,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,610,000	)			(627,000	)
Total liabilities and equities	$	(3,101,000	)		$	(1,118,000	)

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

PADRE INC. and SIEERA CORPORATION Consolidated worksheet For the year ending December 31, 2018
			Consolidated entries
	Padre	Sierra	Debit	Credit	Noncontrolling interest	Consolidated totals
revenues	(1396980)	(657250)				(2054230)
cost of goods sold	736000	399000				1135000
depreciation expense	298000	15100		1800		311300
amortization expense	0	8600	7500			16100
interest expense	50100	5550	1900			57550
equity income in sierra	(177120)	0	177120			0
sepreate company net income	(490000)	(229000)
consolidated net income						(534280)
NI to noncontrolling interest					(44280)	44280
NI to Padre company						(490000)
retained earnings 1/1	(1380000)	(463000)	463000			(1380000)
net income	(490000)	(229000)				(490000)
dividends declared	260000	65000		52000	13000	260000
retained earnings 12/31	(1610000)	(627000)				(1610000)
current assets	854920	569100				1424020
investment in sierra	922080		52000	974080		0
land	369000	60600	226000			655600
building and equipment	955000	324900	1800	18000		1263700
copyright	0	163400	150000	7500		305900
total assets	3101000	1118000				3649220
accounts payable	(220000)	(199000)				(419000)
notes payable	(521000)	(132000)	15200	1900		(639700)
NCI in sierra 1/1				199240	(199240)
NCI in sierra 12/31					(230520)	(230520)
common stock	(300000)	(100000)	100000			(300000)
additional paid in capital	(450000)	(60000)	60000			(450000)
retained earnings 12/31	(1610000)	(627000)				(1610000)
total liab. And stockholders' equity	(3101000)	(1118000)	1254520	1254520		(3649220)

(322000-340000)/10 =-1800

(322000-172000)/20 =7500

(132000-116800)/8 = 1900

65000*20% =13000

65000*80% = 52000

286600-60600 = 226000

322000-340000=-18000

322000-172000=150000

132000-116800= 15200