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 (10-year remaining life) Copyright (20-year remaining life) Notes payable (due in 8 years) Book value $ 65,280 295,000 184, eee (187,000) Fair value $ 307,200 276, eee 218,888 (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, 2021, for both companies.

Answer 1

			Consolidated entries
	Padre	Sierra	Debit	Credit	Noncontrolling interest	Consolidated totals
revenues	-1401180	-647000				-2048180
cost of goods sold	770000	426000				1196000
depreciation expense	264000	15500		1900		277600
amortization expense	0	5200	5700			10900
interest expense	50700	5300	1800			57800
equity income in sierra	-151520	0	151520			0
Net income	-468000	-195000
retained earnings 1/1	-1492500	-478000	478000			-1492500
Net income	-468000	-195000				-468000
dividends declared	260000	65000		52000	13000	260000
retained earnings 12/31	-1700500	-608000				-1700500
current assets	998460	681500				1679960
investment in sierra	891040	0	52000	943040		0
land	349000	65200	242000			656200
builiding and equipment	944000	279500	1900	19000		1206400
copyright	0	98800	114000	5700		207100
total assets	3182500	1125000				3749660
accounts payable	-205000	-170000				-375000
notes payable	-527000	-187000	14400	1800		-701400
common stock	-300000	-100000	100000			-300000
additional paid in capital	-450000	-60000	60000			-450000
NCI in sierra 1/31				197880	-197880	0
NCI in sierra 12/31					-222760	-222760
retained earnings 12/31	-1700500	-608000				-1700500
total liab. And stockholders' equity	-3182500	-1125000	1221320	1221320		-3749660

Explanations:

1. 295,000 - 276,000 = 19,000 / 10 = 1,900

2. 104,000 - 218,000 = 114,000 / 20 = 5,700

3. 187,000 - 172600 = 14400 / 8 = 1,800

4. 307200 - 65200 = 242,000

5. 295,000 - 276,000 = 19,000

6. 104,000 - 218,000 = 114,000

7. 187000 - 172600 = 14,400