Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2021, 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: Land Buildings and equipment (18-year remaining life) Copyright (20-year remaining life) Notes payable (due in 8 years) Book Value $ 65,200 295,00 184,888 (187,600) Fair Value $ 387,200 276,00 218,000 (172,688) 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, 2021. for both companies. Sierra $ (647,888) 426,000 15,500 5,200 5,300 Revenues Cost of goods sold Depreciation expense Amortization expense Interest expense Equity in income of Sierra Net income Retained earnings, 1/1/21 Net income Dividends declared Retained earnings, 12/31/21 Current assets Investment in Sierra Land Buildings and equipment (net) Copyright Total assets Accounts payable Notes payable Connon stock Additional paid in capital Retained earnings (above) Total liabilities and equities Padre $(1,481, 189) 770,000 264, eee 0 50,700 (151,520) $ (468,888) $(1,492,500) (468,000) 260, eee $(1,788,588) $ 998,460 891,040 349,00 944, eee 0 $ 3,182,588 $ (285,000) (527,000) (388,888) (450,000) (1,780,582) $(3,182,580) $ (195, eee) $ (478,000) (195,880) 65,000 $ (608, eee) $ 681,5ee 65,280 279,580 98,888 $ 1,125,000 $ (178,888) (187,080) (188,888) (68,888) (68B,eee) $(1,125, eee) At year-end, there were no Intra-entity receivables or payables.

I need help with investment in sierra. I have no idea what went wrong. Above is showing that it won't take any of the answers.

Answer 1

Solution:

Excess Value of Assests and Liabilities acquired at the time of acquisition Land Buildings and Equipment Copyright Notes Payable Total Difference of Fair Book Value Fair Value value over book Value $ 65,200 $ 307,200 $ 242,000 295,000 276,000 (19,000) 104,000 218,000 114,000 (187,000) (172,600) 14,400 $ 277,200 $ 628,600 $ 351,400 989,400 Noncontrolling Parent 80% Interest 20% Total Purchase price $ 791,520 $ 197,880$ Less: Book Value Common Stock (80,000) (20,000) Additiona Paid In Capital (48,000) (12,000) Retained Earning Beginning of year (382,400) (95,600) Excess Value paid Over Book Value 281,120 70,280 Excess value assigned over book value Land 193,600 48,400 Buildings and equipment (15,200) (3,800) Copyright 91,200 22,800 Notes Payable 11,520 2,880 Remaining Excess Value 0 0 (100,000) (60,000) (478,000) 351,400 242,000 (19,000) 114,000 14,400 0 Depreciation, amortization and Interest expenses on excess value acquired Original Value as on 1/1/18 Useful life Deprecitlon, Amortization and Interest Expenses Non Controlling Parent Share B0% Interest 20% (19,000) 10 years (1,900) (1,520) (380) Deprecition: Building and equipment Amoritzation: Copyright Interest Expense: Notes Payable 114,000 20 years 5,700 4,560 1,140 14,400 years 1,800 1,440 360

Consolidation Worksheet At December 31, 2018 Adjustment Entries Padre sierra Debit Credit NCI $ (1,401,180) $ (647,000) 770,000 426,000 264,000 15,500 1,900 101 0 5,200 [O] 5,700 50,700 5,300 (0) 1,800 (151,520) 01C 151,520 $ (468,000) S (195,000) Consolidation $ (2,048,180) 1,196,000 277,600 10,900 57,800 Revenues Cost of goods sold Depreciation expense Amortization expense Interest Expense Equity income in Sierra Net Income Consolidatied Net Income To Non-Controlling interest Consolidated Net Income $ (505,880) (37,880) (37,880) $ (468,000) $ 1468,000) $ (195,000) 478,000 Retained earnings, 1/1/18 Net Income(Above) Dividends declared Retained earnings, 12/31/18 $ (1,492,500) S (478,000) (EJ (468,000) (195,000) 260,000 65,000 $(1,700,500) $ (608,000) $ (1.492,500) (468,000) 260,000 $ (1,700,500) 52,000 cl 13,000 681,500 Current Assets Investment in Sierra 998,460 891,040 1,679,960 0 99,520 ICI 510,400 LEI 281,120 (A) Land Buildings and equipment (net) Copyright Total Assets 349,000 944,000 0 3,182,500 65,200 (A) 279,500 (0) 98,800 (A) 1,125,000 242,000 1,900 114,000 19,000 (A) 5,700 101 656,200 1,206,400 207,100 3,749,660 Accounts Payable Notes Payable Non Controlling Interest 1/1 (205,000) (527,000) (170,000) (187,000) (A) (375,000 (701,400) 14,400 1,800 (D) 127,600 LEI 70,280 (A) (197,880) Non Controlling Interest 12/31 Common Stock Additional paid in capital Retained earnings (above) Total Liabilities and equity 100,000 60,000 (300,000) (100,000) (CE) (450,000) (60,000 (E) (1,700,500) (608,000) (3,182,500) (1,125,000) (222,760) (300,000 (450,000) (1,700,500) (3,749,660) 1,169,320 1,169,320

Total Working Notes Non Controlling Interest on Subsidiary's Income Net Income Depreciation Amortization Interest Non Controlling Interest on subsidiary's Income NCI 20% (195,000) (39,000) (1,900) (380) 5,700 1,140 1,800 360 (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 (E) 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
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