Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $791,520 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $989,400 although Sierra’s book value was only $638,000. 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 $ 65,200 $ 307,200 Buildings and equipment (10-year remaining life) 295,000 276,000 Copyright (20-year remaining life) 104,000 218,000 Notes payable (due in 8 years) (187,000 ) (172,600 ) 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 $ (1,401,180 ) $ (647,000 ) Cost of goods sold 770,000 426,000 Depreciation expense 264,000 15,500 Amortization expense 0 5,200 Interest expense 50,700 5,300 Equity in income of Sierra (151,520 ) 0 Net income $ (468,000 ) $ (195,000 ) Retained earnings, 1/1/18 $ (1,492,500 ) $ (478,000 ) Net income (468,000 ) (195,000 ) Dividends declared 260,000 65,000 Retained earnings, 12/31/18 $ (1,700,500 ) $ (608,000 ) Current assets $ 998,460 $ 681,500 Investment in Sierra 891,040 0 Land 349,000 65,200 Buildings and equipment (net) 944,000 279,500 Copyright 0 98,800 Total assets $ 3,182,500 $ 1,125,000 Accounts payable $ (205,000 ) $ (170,000 ) Notes payable (527,000 ) (187,000 ) Common stock (300,000 ) (100,000 ) Additional paid-in capital (450,000 ) (60,000 ) Retained earnings (above) (1,700,500 ) (608,000 ) Total liabilities and equities $ (3,182,500 ) $ (1,125,000 ) 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.)

PADRE INC., AND SIERRA CORPORATION
Consolidated Worksheet
For Year Ending December 31, 2018
			Consolidation Entries
Accounts	Padre	Sierra	Debit	Credit	Noncontrolling Interest	Consolidated Totals
Revenues	$(1,401,180)	$(647,000)
Cost of goods sold	770,000	426,000
Depreciation expense	264,000	15,500
Amortization expense	0	5,200
Interest expense	50,700	5,300
Equity in income of Sierra	(151,520)	0
Separate company net income	$(468,000)	$(195,000)
Consolidated net income						$0
NI to noncontrolling interest
NI to Padre Company						$0
Retained earnings 1/1	$(1,492,500)	$(478,000)
Net income (above)	(468,000)	(195,000)
Dividends declared	260,000	65,000
Retained earnings 12/31	$(1,700,500)	$(608,000)				$0
Current assets	$998,460	$681,500
Investment in Sierra	891,040
Land	349,000	65,200
Buildings and equipment (net)	944,000	279,500
Copyright	0	98,800
Total assets	$3,182,500	$1,125,000				$0
Accounts payable	$(205,000)	$(170,000)
Notes payable	(527,000)	(187,000)
NCI in Sierra 1/1
NCI in Sierra 12/31					$0
Common stock	(300,000)	(100,000)
Additional paid-in capital	(450,000)	(60,000)
Retained earnings 12/31 (above)	(1,700,500)	(608,000)
Total liabilities and stockholders' equity	$(3,182,500)	$(1,125,000)	$0	$0		$0

Answer 1

Excess Value of Assests and Liabilities acquired at the time of acquisition Difference of Fair Book Value Fair Value value over book Value 242,000 (19,000) 114,000 14,400 351,400 $65,200307,200 $ Land Buildings and Equipment Copyright Notes Payable Total 276,000 218,000 172,600) $ 277,200$628,600 295,000 104,000 187,000 Noncontrolling Parent 8096 | Interest 20% Total $791,520$197,880 $ Purchase price Less: Book Value Common Stock Additiona Paid In Capital Retained Earning Beginning of vear Excess Value paid Over Book Value Excess value assigned over book value Land Buildings and equipment Copyright Notes Payable Remaining Excess Value 989,400 80,000 48,000 382,400 281,120 (20,000) (12,000) (95,600) 70,280 (100,000) 60,000) 478,000) 351,400 193,600 15,200 91,200 11,520 0 48,400 3,800) 22,800 2,880 0 242,000 (19,000) 114,000 14,400 0

Depreciation, amortization and Interest expenses on excess value acquired Deprecition, Amortization and Original Value Non Controlling Deprecitiaon: Building and equipment Amoritzation (19,000) 10 years 114,000 20 years 14,400 8years (1,520) 4,560 1,440360 (380) 1,140 Interest Expense: Notes Payable

Consolidation Worksheet At December 31, 2018 Adiustment Entries Debit Padre Sierra Consolidation $ (2,048,180) 1,196,000 277,600 10,900 57,800 0 (505,880) Credit NCI S (1)S (647,000 426,000 15,500 Revenues Cost of goods sold Depreciation expense Amortization expense Interest Expense Equity income in Sierra 1,401,180 770,000 264,000 0 50,700 151,520 1,900 [D] 5,200 |[D] 5,300 [D)] 0 [C] 5,700 1,800 151,520 Net Income (468,000) $(195,000) Consolidatied Net Income To Non-Controlling Interest 37,880 37,880 (468,000) Consolidated Net Income (468,000) $(195,000) Retained earnings, 1/1/18 Net Income(Above $(1,492,500) S(478,000) (195,000) 65,000 (1,700,500)$(608,000) 2,500) $(4 468,000 260,000 $ (1,492,500) 468,000 260,000 (1,700,500) 478,000 Dividends declared 52,000 [c 13,000 Retained earnings, 12/31/18

Current Assets 998,460 891,040 681,500 1,679,960 0 99,520 [C] 510,400 [E] 281,120 [A] Investment in Sierra Land Buildings and equipment (net Copyright Total Assets 349,000 944,000 0 3,182,500 65,200 [A] 279,500 |[D] 98,800 [A] 242,000 1,900 114,000 656,200 1,206,400 207,100 3,749,660 19,000 [A] 5,700 [D] 1,125,000 Accounts Payable Notes Payable Non Controlling Interest 1/1 205,000 527,000 (170,000) (187,000) [A] 1,800 [D] 127,600 |[E] 70,280 [A] (197,880) (375,000) 701,400 14,400 Non Controlling Interest 12/31 Common Stock Additional paid in capital Retained earnings (above Total Liabilities and equit (222,760) 300,000) (450,000) 1,700,500) 3,749,660) (100,000) [E] 300,000 450,000 100,000 60,000 (60,000) [E] 608,000) 1,700,500 (3,182,500)(1,125,000) 1,169,320 1,169,320

Working Notes Non Controlling Interest on Subsidiary's Income Net Income Depreciation Amortization Interest Non Controlling Interest on Subsidiary's Income Total NCI 2096 (195,000) (1,900) 5,700 1,800 (39,000) (380 1,140 360 (189,400) (37,880) Entries Explanation [C] it is to eliminate the equity investment balance from equity income and share in dividend income as on 12/31/18 [El it is to eliminate the equity investment from the book value of Sierra and allocating Non controlling Interest as on 1/1/18 [A] it is to record the excess value of assets acquired on the date of acquisition as on 1/1/18 [D] it is to record amortization of excess value assets and liabilities during the year 2018