Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $809,120 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $1,011,400 although Sierra’s book value was only $669,000. 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	$	60,900			$	320,900
Buildings and equipment (10-year remaining life)		330,000				298,000
Copyright (20-year remaining life)		157,000				261,000
Notes payable (due in 8 years)		(167,000	)			(156,600	)

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	$	(1,408,440	)		$	(601,350	)
Cost of goods sold		716,000				422,000
Depreciation expense		282,000				11,000
Amortization expense		0				7,850
Interest expense		51,800				5,500
Equity in income of Sierra		(121,360	)			0
Net income	$	(480,000	)		$	(155,000	)
Retained earnings, 1/1/18	$	(1,455,000	)		$	(509,000	)
Net income		(480,000	)			(155,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,675,000	)		$	(599,000	)
Current assets	$	1,048,520			$	585,950
Investment in Sierra		878,480				0
Land		358,000				60,900
Buildings and equipment (net)		920,000				319,000
Copyright		0				149,150
Total assets	$	3,205,000			$	1,115,000
Accounts payable	$	(242,000	)		$	(189,000	)
Notes payable		(538,000	)			(167,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,675,000	)			(599,000	)
Total liabilities and equities	$	(3,205,000	)		$	(1,115,000	)

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., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $809,120 cash

Questions Padre, Inc, buys so percent of the outstanding Common stock of Sienora corporation on January 1. 2018, far $ 809,120cash. Answer. Excess value of Assests and Liabilities acquired at the time of acquisition Dif Potence of fair Bock value Fainvalue value over book value I Land $ 60,900 $ 320,900 $ 260,000 Buildings and Equipment 330,000 298,000 (32,000) Copyright 157.000 261.000. 104.000 alates Payable C167,000) (1561600) 10,400 Total $ 380,900 $_723.300 € 342,400 (80.000) Pasient 80% Noncontavelling 'lintegrest 20%. Total Porichase Porice $ 809.120 $ 202, 280 $ 1,011,400 Less: Book value Common stack. (20,000) CICO,000) Additfonae paid in copilall (48,000) (12,000) (60.000) Retained earning onlodis (407, 200 C101,800) (509,000 Exces value paid over Book value 273920 L G8,480 Encess value assigned 34240 Ovoor book value Land 208,000 52,000 260,000 Buildings and equipment (25:600) (6:40) (32,000 Copyright 83,200 20.800 104,000 Holes payable 81320 2080 10,400 Remaining excess value

Interest Depreciation , amortization and on excess value acquired. expenses original value as on lile De perecition, Amoor Heation and interest Expenses useful life (32.000) lo years C3.200) Deparecitaon: Building and equipment Amoroitzation: Copyright Lin festest Expenser Notes__Payable 1041000 20 years 5,200 10.40o 8 years 1 300 Ku 311000) ( 202,280 131900 Accounts Payable (242.000) (189000) Wotes Payable C538000 167.000 4 10 hoo 300 D Non contenidling Interest 202,260 (WN Mon contaalling interest - 12/31 common stock C300,000 C100, cool] 100000 Additional Paid inapitel uso, con) (60,on) (3) 60.000 Relained caginings 61,6756000 599,000 Tolal Liabilites and Somos uity (3205,000 Culls,cool 1226.460*1, 2.26.166 (219.620 C219.620) (300,000) (usGood) (11675,000) (3.771,520) Warking Notes Non con torolling Interest on Subsidiary's Net Income Deporeciation Amortization interest Adjusted Net Income Non contarolling Integues 14159,700X207 Income (1857600) (3,200) (51200) 1.300 (151760) (30,340

Entries Eduplanation U it is to eliminate the equity investment balance forom equity income for the yeasy ended 12/3118 [C] it is to eliminate the intercompany dividend income as on 12/31/18 Dividend Declared by Sierra 65.000 Non contorolling Integgest (20%) Contorolling interest (80%) 13,000 52,000 [E] it is to eliminate the equity Investment from the share in the book value of Sienna as on il1118 and allocating NCI AJ it is to diecoond the excess value of assets acquired on the date of acquisition as on 11/18 (D) it is to record amortization of excess value assets and liabilities during the year 2018

Combine Credit Entry EA and I Investment in S'eura Non controlling Interest Oil01/18 121, 360 80,000 20,000 48,000 407,200 1 24.000 101,800 Entory I (investment income Entory E (Stock Labeling Equity) Common stock Additiona pand in capitel Retained Earning Olloilie Entory A fexcess fator value) Land Buildings and cauipment Copyright Notes Payable olal CaneditAccustment 208,000 C251600) 83,200 8,320 930, 480 $2,000 (61400) 20,800 21080 202,280