Question

Padre, Inc., buys 80 percent of the outstanding common stock of Sierra Corporation on January 1, 2015, for $751,680 cash. At the acquisition date, Sierra’s total fair value, including the noncontrolling interest, was assessed at $939,600 although Sierra’s book value was only $683,000. 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	$	68,200		$	268,200
Buildings and equipment   (10-year remaining life)		350,000			327,000
Copyright (20-year life)		105,000			175,000
Notes payable (due in 8 years)		(205,000	)		(195,400	)

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, 2015, for both companies.

		Padre			Sierra
Revenues	$	(1,431,820	)	$	(635,250	)
Cost of goods sold		764,000			414,000
Depreciation expense		293,000			12,600
Amortization expense		0			5,250
Interest expense		48,500			6,400
Equity in income of Sierra		(155,680	)		0
Net income	$	(482,000	)	$	(197,000	)
Retained earnings, 1/1/15	$	(1,467,500	)	$	(523,000	)
Net income (above)		(482,000	)		(197,000	)
Dividends declared		260,000			65,000
Retained earnings, 12/31/15	$	(1,689,500	)	$	(655,000	)
Current assets	$	1,018,140		$	685,650
Investment in Sierra		855,360			0
Land		339,000			68,200
Buildings and equipment (net)		956,000			337,400
Copyright		0			99,750
Total assets	$	3,168,500		$	1,191,000
Accounts payable	$	(204,000	)	$	(171,000	)
Notes payable		(525,000	)		(205,000	)
Common stock		(300,000	)		(100,000	)
Additional paid-in capital		(450,000	)		(60,000	)
Retained earnings (above)		(1,689,500	)		(655,000	)
Total liabilities and equities	$	(3,168,500	)	$	(1,191,000	)

At year-end, there were no intra-entity receivables or payables.

Using the acquisition method, prepare the worksheet to consolidate these two companies.

Answer 1

Answer:

Acquisition date subsidiary fair value	939600
Book value of subsidiary	(683000)
Fair value in excess of book value	256600
Allocations to specific accounts		Life
Land (268200-68200)	200000
Building & Equipment (327000-350000)	(23000)	10 Years
Copyrights (175000-105000)	70000	20 Years
Notes Payable (-195400+205000)	9600	8 Years
Remaining
Annual excess amortization :
Building & Equipment (23000/10)	(2300)
Copyrights (70000/20)	3500
Notes payable (9600/8)	1200
	2400
NIC opening share (683000*20%)	136600
NCI share in dividends (65000*20%)	(13000)
NCI share in net income (197000-2400)*20%	38920
NCI share in specific addition to accounts	51320
256600*20%
	213840

Consolidated Worksheet
Accounts	Padre	Sierra	Debit ($)	Credit	NCI	Consolidated
Revenues	(1431820)	(635250)						(2067070)
Cost of goods sold	764000	414000						1178000
Depreciation expense	293000	12600			(E)	2300		303300
Amortization expenses		5250	(E)	3500				8750
Interest expense	48500	6400	(E)	1200				56100
Equity Income of sierra	(155680)		(I)	155680
Separate net income	(482000)	(197000)
Consolidated net income								(520920)
NI to noncontrolling interest							(38920)	38920
NI to padre cmpany								(482000)
Retained earnings 1/1	(1467500)	(523000)	(S)	523000				(1467500)
Net Income (above)	(482000)	(197000)						(482000)
Dividends declared	260000	65000			(D)	52000	13000	260000
Retained earnings 12/31	(1689500)	(655000)						(1689500)
Current assets	1018140	685650						1703790
Investment in sierrs	855360		(D)	52000	(S)	546400
					(I)	155680
					(A)	205280
Land	339000	68200	(A)	200000				607200
Buildings and Equipment (net)	956000	337400	(E)	2300	(A)	23000		1272700
Copy rights		99750	(A)	70000	(E)	3500		166250
Total assets	3168500	1191000						3749940
Accounts payable	(204000)	(171000)						(375000)
Notes payable	(525000)	(205000)	(A)	9600	(E)	1200		(721600)
NCI in sieria 1/1					(S)	136600
NCI in sieria 12/31					(A)	51320	(187920)
							(213840)	(213840)
Common stock	(300000)	(100000)	(S)	100000				(300000)
Additional paid in capital	(450000)	(60000)	(S)	60000				(450000)
Retained Earnings	(1689500)	(655000)						(1689500)
Total Liabilities and Equity	(3168500)	(1191000)		1177280		1177280		(3749940)