Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2018, for $706,560 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $883,200 although Sierra’s book value was only $608,000. 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	$	66,500			$	221,500
Buildings and equipment (10-year remaining life)		369,000				334,000
Copyright (20-year remaining life)		164,000				308,000
Notes payable (due in 8 years)		(139,000	)			(127,800	)

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	$	(1,477,280	)		$	(653,150	)
Cost of goods sold		767,000				419,000
Depreciation expense		350,000				16,000
Amortization expense		0				8,200
Interest expense		50,400				5,950
Equity in income of Sierra		(159,120	)			0
Net income	$	(469,000	)		$	(204,000	)
Retained earnings, 1/1/18	$	(1,430,000	)		$	(448,000	)
Net income		(469,000	)			(204,000	)
Dividends declared		260,000				65,000
Retained earnings, 12/31/18	$	(1,639,000	)		$	(587,000	)
Current assets	$	1,034,320			$	478,700
Investment in Sierra		813,680				0
Land		330,000				66,500
Buildings and equipment (net)		934,000				353,000
Copyright		0				155,800
Total assets	$	3,112,000			$	1,054,000
Accounts payable	$	(199,000	)		$	(168,000	)
Notes payable		(524,000	)			(139,000	)
Common stock		(300,000	)			(100,000	)
Additional paid-in capital		(450,000	)			(60,000	)
Retained earnings (above)		(1,639,000	)			(587,000	)
Total liabilities and equities	$	(3,112,000	)		$	(1,054,000	)

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